Icade (ICAD) Earnings Call Transcript

Welcome to the Icade 2026 Half Year Results Presentation Conference Call. [Operator Instructions]. Now I will hand the conference over to the speakers. Nicolas Joly, CEO; and Bruno Valentin, CFO. Please go ahead.

Good morning, everyone, and thank you for joining us today. With Bruno Valentin, I'm pleased to present Icade's 2026 half year results. I will begin with the key highlights and strategic developments of the first half. Bruno will then take you through financial results and the balance sheet in more detail. I will come back at the end with our outlook for 2026 before we open the floor for questions. So let me start with the main takeaways from the first half of 2026. The first key message is the continued disciplined execution of our disposal plan. We completed the sale of the Marin building on the Chill for EUR 402 million. In Healthcare, an agreement has been signed relating to the disposal of the Portuguese portfolio, representing an exposure of around EUR 75 million for Icade. The second key message is the new step taken with Eco. Last week, we announced the acquisition of the remaining 49% minority stake in the tower, allowing us to regain full ownership of this landmark asset in Madero. This transaction follows a significant asset management effort and comes after the tower has been brought to full occupancy. The third message is the resilience of our operating performance. In Property Investment, close to 94,000 square meters were signed or renewed in the first half and the financial occupancy rate improved to 85.9% with office occupancy now close to 90%. In Property Development, after a softer start to the year, activity recovered well in the second quarter. Residential orders reached almost 2,400 units in the first half, up 12% in volume and 6% in value year-on-year. The fourth message is the strength of our financial structure. We continue to benefit from a high level of liquidity, which was further reinforced during the period through a new EUR 150 million bond issue due in 2035 and the renewal of EUR 450 million of revolving credit facility. And finally, we confirm our 2026 guidance with group net current cash flow expected between EUR 2.90 and EUR 3.10 per share, while 2026 should mark a low point for strategic cash flows. Turning now to the key figures for the first half. Group net current cash flow came in at EUR 1.80 per share compared with EUR 2.03 per share in the first half of 2025, which is consistent with our full year guidance. Net current cash flow from strategic operations amounted to EUR 1.15 per share versus EUR 1.44 per share last year, mainly reflecting lower net rental income in property investment and lower margins in commercial property development. NAV NTA per share stood at EUR 49.7, down 6.9% compared with year-end 2025, mainly due to the decline in property values and the distribution paid fully in June. At the same time, the balance sheet remained sound. LTV, including duties improved slightly to 39% from 79.6% at year-end 2025, while net debt to EBITDA remained broadly stable at 9.2x. As expected, the average cost of debt increased moderately to 1.85%, reflecting the bond issues completed in 2025 and 2026. This increase remains controlled, and we still target around 2% by year-end. At business line level in Property Investment, gross rental income amounted to EUR 170 million, down 1.1% like-for-like. The portfolio value stood at EUR 5.6 billion compared with EUR 6.1 billion at year-end 2025, reflecting both disposals and a like-for-like value decline of 3.1%. EPRA net initial yield stood at 5.4%. In Property Development, economic revenue reached EUR 473 million, down 5.5% year-on-year, mainly due to the expected slowdown in commercial projects. The current economic operating margin came in at 1.9% versus 2.3% in the first half 2025. This reflects the lower contribution from commercial activity, which supported margins last year, while residential margins are gradually normalizing. Residential orders totaled 2,368 units, up year-on-year. Let me now come back to disposals and capital allocation, which remains a central pillar of our strategy. Our approach remains highly disciplined. We execute disposal when pricing conditions are attractive with a clear objective, crystallizing value, reinforcing the balance sheet and redeploying capital towards higher return opportunities. As you know, we completed in H1 the disposal of Marion for EUR 402 million after a competitive process, crystallizing a value of around EUR 33,000 per square meter, more than 20% above the December 2024 NAV. Combined with previous disposal, we have now achieved more than half of the EUR 1.3 billion disposal target set for property investment over the 2024-2028 strategic plan. Around EUR 600 million remain to be executed over the remainder of the plan. In Healthcare, we are happy to announce further progress. Primer Healthcare and Nash, the International SPV have indeed signed an agreement for the disposal of the Portuguese portfolio. Icade's exposure amounts to EUR 75 million. After this transaction and the steps already completed, around EUR 900 million of health care exposure remain to be disposed of by the end of the plan. Let's now turn back to Marina, which illustrates our disciplined approach to capital allocation. By selling the asset, we avoided refinancing at approximately 4.5% in the current interest rate environment. Over time, we will redeploy the proceeds into higher return investment opportunities, particularly in attractive growth sectors such as data centers and student housing. Let me now turn to the Portuguese Healthcare transaction on Page 12. The portfolio comprises 4 assets located in Lisbon, Porto, Albufera and Lag. The portfolio is valued at EUR 186 million, in line with the value reflected in Icade's NAV as of December 2025. Icade's exposure amounts to around EUR 75 million, although the final allocation of proceeds will be specified at a later stage. Closing is expected in the second half of 2026. To be noted that this transaction will have no impact on 2026 group net current cash flow as the contribution from nonstrategic operations has already been secured through the dividend received from Premier Healthcare in the first half. Moving now to operating performance in Part Investments on Page 14. We signed or renewed close to 94,000 square meters, representing EUR 32 million in annual headline rent with an average firm commitment of 8.7 years. Most of these transactions were completed in La Défense and Per Defense area, which continue to demonstrate strong attractiveness for our occupiers, combining quality asset, accessibility and competitive rental conditions. Our recent leasing performance is translating into improved operating metrics. At end June, the financial occupancy rate stood at 85.9%, up 0.9 points versus March, while office occupancy is now close to 90%. Page 15 highlights the renewal of our main 2027 lease expiry at Bnt in Mon -- we successfully renewed 100% of the space, representing 58,000 square meters on a new 9-year firm lease with AXA. This is a significant achievement, both in scale and in duration, and it illustrates the quality of the asset, its accessibility and the strength of our long-term tenant relationships. As a result, our teams have continued to improve the profile of our future lease maturities, as shown on Page 16. Our WALT increased by 20% to 4 years, and we have significantly improved visibility on our 2027 lease expiries. We indeed currently expect around 75% of the leases expiring in 2027 to stay, although this will, of course, involve crystallizing some negative reversion. Talking about that, potential reversion on the overall portfolio now stands at minus 7.1% compared with the minus 9.7% at the end of June -- at the end of 2025, sorry. After factoring in the renewal of the major KPMG and AXA leases, potential negative reversion narrows to minus 4.4%. Slide 17 brings me to ECO. In July, we took advantage of a good opportunity to acquire the remaining 49% minority stake in the tower. We now own 100% of Eco, an iconic asset in La Défense, offering 79,000 square meters of office space now fully let following the KPMG lease renewal and the lease signed with Goren Prefecture. From a financial perspective, the acquisition was completed at a yield of over 8% and is accretive to the group net current cash flow. The asset was already fully consolidated in the group's financial statement prior to the acquisition. Turning now to Property Development on Slide 18. The first half performance in residential segment was satisfactory despite market that remains at historically low levels. Individual buyers also showed solid momentum, up 6% in volume and 5% in value despite the market that remains sharply down by around 15% in volume. This resilience was complemented by strong bulk orders to institutional investors, which increased by 60% in volume and close to 9% in value. They accounted for 60% of H1 total reservation in volume terms. The Slide 19 gives an outlook on future activity. Despite the still constrained environment due to municipal election, Icade was able to rely on permits obtained at the end of 2025 to accelerate construction starts, which were up 63% year-on-year. These new projects display a high level of pre-commercialization above 80%. As of end of June 2026, total backlog stood at EUR 1.6 billion, offering around 20 months of revenue visibility. Residential backlog remains stable and continues to support the business. As regards margins, we are seeing a gradual improvement in the quality of the portfolio. Operation with restored margin represented 37% of revenue in the first half compared with 18% in 2025. This confirms the ongoing rebalancing of the portfolio and supports our expectation of a return to breakeven by year-end. Let me now turn to Slide 22 and 23 to highlight some of our recent achievements in terms of new partnerships that will support future growth while remaining disciplined on capital. The first partnership targets the student accommodation segment. In July 2026, we entered into a strategic partnership with the Caisse de Dépôt through a dedicated investment vehicle owned 51% by Icade and 29% by B. Over an initial 3-year investment period of around EUR 240 million is expected to be deployed with a target of around 2,000 beds. Two first projects have been already launched in I and Nova with delivery expected in 2028. We also launched Evolution together with Bquef.Vic aims to convert vacant office buildings into residential developments, primarily in the Paris region, where the potential addressable market is significant at around 6 million square meters. At this stage, the partnership includes a 3-year investment period with the ambition to deliver 50,000 to 60,000 square meters of refurbished space meeting high environmental standards. And with that, I'll now hand over to Bruno to go through the financial results in more detail.

Thank you, Nicolas, and good morning, everyone. Let me start with a focus on net current cash flow from strategic operations. As Nicolas amounting to EUR 1.15 per share in the first half of 2026, EUR 1.44 per share on 1 year before, but fully in line with what we had anticipated. The main drivers are the follow: First, net rental income in property had a negative impact of EUR 0.13 per share mainly due to tenant and negative. Second, property development contributed EUR 0.70 per share less than last year, reflecting the low point in commercial activity despite the gradual recovery in residential finance expense had a negative impact of EUR 0.05 per share as the cost of debt continued to normalize. On the positive side, lower operating costs made a positive contribution. Looking at rental income from specifically on Page 27, gross income declined from EUR 18.3 million to EUR 17.2 million 4.5% on a reported basis and 1.1% like-for-like. Compared with 2025, the like-for-like trend is normalizing. -- and still had a negative effect, but the pressure is gradually easing relative to last year. Indexation as expected a limited positive impact. Let's move on Page 28. In Property Development, revenue and margin trends differ significantly across segments. Residential is improving both in terms of revenue contribution and current economic margin. By contrast, the sharp decline in commercial development continues to weigh on volume and fully explains the decrease in revenue. Margin evolution is also impacted by one-off base effect deliveries supported margin in the first half of 2025. Overall, residential margin are progressively improving in line with the ongoing rebalancing of the portfolio. Financial discipline remains a key priority throughout the first half. As illustrated on Page 29, we continued to reduce the cost base with a EUR 6.5 million decrease in cost in half 1 2026. This improvement were driven by procurement discipline, process optimization and headcount control. Importantly, the first half reduction does not yet include the benefits from the voluntary redundancy plan, which should start contributing for the second half onward and support our savings trajectory. Turning to finance cost on Page 30. The evolution is fully in line with expectations. The average cost of debt increased gradually to 1.85% with a target of around 2% by year-end. We also maintained strong visibility with 97% of projected debt hedged for the second half of 2026 and more than 85% until the end of 2028. Interest coverage is normalizing after previously high levels but remains solid. Moving now to the balance sheet. The property investment portfolio was valued at EUR 5.6 billion, excluding duty at end June, down 8.4% on a reported basis compared with December 2025. This includes disposal, not [ Marin ] and continuing investment in development CapEx. On a like-for-like basis, the portfolio declined by 3.1% in the first half, mainly driven by higher market rates. EPRA net initial yield stood at 5.4%, while the top-up yield stood at 6.3%. EPRA NTA per share came to EUR 49.7 at June, down 6.9% compared with year-end. This change is mainly explained by the lower valuation of the property investment portfolio as well as the 2025 distribution fully paid during the period. Turning to financing as shown on Page 34. Icade maintained a very strong liquidity position of EUR 2.5 billion at June 2026 covering debt maturities until 2030. During the first half, we issued a new EUR 150 million green bond maturity in 2035 and renewed EUR 450 million of revolving credit facility with an average maturity of 5 years. This leaves the group with a robust liquidity profile and strong flexibility to manage upcoming maturities. With that, I will hand over to Nicolas for the conclusion and 2026 outlook.

Many thanks, Bruno. So based on our first half performance and our expectation for the second half, we confirm our full year guidance. Group net current cash flow is expected to be between EUR 2.90 and EUR 3.10 per share. This includes between EUR 2.25 and EUR 2.45 per share from strategic operations, which we continue to view as a low point and around EUR 0.65 per share from discontinuing operations already secured. In the real estate environment still marked by persistent uncertainties around the pace of recovery and market development, we remain cautious and fully focused on execution. Subject to no further major deterioration, we expect in the second half an improvement in property development margins and a reduction in overhead, which should more than offset the expected deterioration in the financial results. To conclude, the environment remains clearly challenging. However, the first half once again demonstrated our ability to execute with discipline and consistency. It highlighted our capacity to allocate capital efficiently, delivered solid operating performance across both Property Investment and Property Development and maintain a robust financial structure. I would like to sincerely thank all Icade teams for their commitment and hard work in delivering these results in a demanding environment. And with that, Bruno and I are now ready to take your questions. Thank you very much.

[Operator Instructions]. The next question comes from Stéphane Afonso from Jefferies.

So the first one on asset valuation. Could you please elaborate a bit more on the main assumptions used by your appraisal? And we have seen in some areas, direct market is expanding by 30 bps year-to-date. So to what extent the valuation is aligned with the current market evidence? And what should we expect for H2? That's my first question.

Okay. Thanks for your question. Well, indeed, you saw in H1 '26, well, the value they went slightly down on office, minus 2.8% on a like-for-like basis. The other side went slightly up for light industrial plus 3% on a like-for-like basis. Well, Clearly, we are remaining in this macro uncertainty and high interest rate environment, which clearly does not help the stabilization of asset values and a recovery on the investment market, which is very sluggish. So there are -- we are all still waiting for a new transaction to confirm that we've reached the trough in valuation and confirm the exact level we're in as far as we are concerned, it's a bit hard, of course, to predict the evolution of the value in the long term as those market volume remains low, the macro unpredictable. Clearly, there are more negative catalysts and positive catalysts, but that's globally where we stand today.

And also regarding the EUR 30 million of rental loss from expected this year, how much do you expect to impact the full year rental income because I understand that only EUR 1 million has been recognized in H1.

That's what we were seeing. It's included in the guidance and the global trajectory. I mean we have a pretty clear view that we start sharing with the market during the annual results. As for 2026, as we said, we have EUR 60 million of lease expiries, of which EUR 30 million were expected departure by the end rather H2, including mostly the former to be repositioned assets. We were talking about EUR 16 million of to be repositioned assets, which is clearly the last portion of those major expiries on this type of asset. If we take a look at '27, I know it's important for you. So we try to give you as much visibility as we can. And we have some good visibility saying that roughly 75% of expiring revenues, around EUR 60 million out of the EUR 80 million potential expiries in '27. So those EUR 60 million include leases for which we consider high probability of renewals coming, of course, together with the part of negative reversion crystallizing. And as for the EUR 20 million, they are rather expected to expire even if the teams are focusing on that. And if we took a look even more, we are already working on the 2028 maturity to anticipate as much as we can.

I guess that as the tenants will vacate the buildings, we should see a sharp decrease in the like-for-like rental growth over the year. Because....

For -- the major impact on like-for-like was rather in '25 because if we take a look at '25, this has been strongly impacted by both negative reversion with less than 3% minus and departures last year at minus 6%. This was partially offset by the stronger indexation, plus 3%. So of course, departures and reversion will still have a negative effect this year, but the pressure is gradually easing relative to last year. The impact on departure were stronger in '25 rather than in '26. And on top of that, we have some departure on some assets that goes into development with projects, talking about Leon, for example.

The next question comes from Florent Laroche-Joubert from ODDO BHF.

I would have 2 questions. So my first question would be on your outlook for 2027 and after. So why are you confident that 2026 should be a low point in terms of operational performance? And then I will ask my second question after.

Yes. Thank you, Florent. -- for your question. Well, we indeed confirm the guidance, '26 and the fact that the strategic cash flow should mark a low point in '26. Firstly, we remain cautious, of course, as we said, given the uncertain macro and the political environment in France with the presidential election underway. But maybe 2 things. We got 2 things that impact negatively the cash flows and 2 things that will support the cash flow. The 2 things that put pressure on the cash flow is a mechanical gradual increase in finance expenses. The second thing is on the investment side, we still expect a decline in rental income because basically, we have a very low indexation. We are crystallizing lease after lease the negative reversion, and we still have the impact of some departure. So this as for the 2 negative impacts. On top of that, on the other side, we have 2 things that support the cash flow. The first one is the recovery in development activity. You saw that the trends they are gradually improving through customer mix rebalancing. We are restoring operational margins. So there's room for improvement still, but the main question mark still remains the pace and intensity of recovery, but let's say, it's going on the right way. And the second positive thing that will support the cash flow is the fact that we are securing lower fixed cost through our cost reduction plan target of an additional recurring EUR 15 million over a full year basis. So to sum it up, we do not claim to control the whole cycle or the macro, but we are focusing on what we can control. Bruno shared the figures. And clearly, that's something we can do on this, and we are fully focusing on that with rigor and discipline that give us confidence to achieve our objective of reaching a low point on the strategic cash flows in '26.

Okay. That's very interesting. And maybe my second question would be on the disposal of health assets. So we have been able to see that you have been able to do some disposal very recently in Portugal. So have you any other visibility to dispose shortly some other international assets, for example, in Germany or in Italy?

Okay. Thanks for this additional question. Maybe before talking about the next step, let's take some time and have a good look at the transaction, which is clearly a good news because we were able to sell this portfolio, which is roughly EUR 200 million on a quite narrow market at satisfying condition on the NAV just exactly after what we did in Italy last year. So this is a good thing. This asset portfolio gross asset value is in line with the value that was retained in our NAV as of December 2025, with an economic stake for us, as you saw at EUR 75 million. So this deal demonstrates once again that we are able to sell assets at the right price and that we are right to wait for the right window. Because clearly, on this core asset, we had at the end of '23, some very opportunistic offer and decided to wait to see the right window. So that's a good news. Talking about the next step. We, of course, we are still focusing on what we intend to do. Our objective remains gradual exit from our minority stake over the reshape plan horizon. And the philosophy still remains the same. We have no intention to sell under unfavorable condition with a large discount as they are still generating some strong cash yield. Once said that, if we take a look, well, France is not the same type of investors as the international assets because here, talking about our exposure, we are talking about the passive stake, which won't attract some strategic investors, but rather financial investors clearly. Another way possible is selling assets in the SPV that will allow us to have some additional capital reduction after those potential asset disposals. That's also something we are keeping on exploring. And if we take a look at the remaining assets, well, Italy, honestly, very small portfolio, roughly EUR 15 million, EUR 20 million, so very small part. We sold almost all of that. But the next focus will be in Germany. As you know, the environment is really not favorable at the time for health care there. But the operators are on recovery there. So we'll try to see if there are some room to create some liquidity as satisfactory condition on this asset. But clearly, that's something we are going to look into it also.

The next question comes from Benjamin Legrand from Kepler Cheuvreux.

Just the first question is again on valuation. I see it's in negative territory, but less negative than it used to be. Obviously, it's been helped by the North deal and the La Défense deal as well on the positive side. Do you know what would have been the impact without those positive elements? That would be the first question. And then the second question will be on margin on the residential development business. I see you expect the new generation projects to be 50-50 compared to the old projects by the end of 2026. But what do you expect for 2027 and 2028? That would be it.

Well, thanks for your question, Benjamin. As for the asset value, well, we've talked about that, but we don't split between the business plan assumption and impact. But what we see that the decrease in value on the office was mainly due to the yield effect. Clearly, as you are highlighting the nice and positive yield the teams were able to secure through those large renewals helped offset a bit of the negative yield impact. But no, we don't usually give the split between that. But it's good to see that all the team's efforts on a day-to-day basis with the tenant renegotiation helped mitigate the negative impact on the yield. As for the property development question on the margin, Well, there, as you can see, a gradual recovery on the margin. As you saw in H1, 37% of the turnover come from operation with restored margin on residential. So after we went through the portfolio in '24, this was 18% in '25. And indeed, we are expecting 50-50 by the end of '26. What we can say on the figures is that the global margin went down a bit due to the fact that there's the termination of commercial activity, which clearly widen the revenue and the margin because there were still a few in '25. We do not expect anymore the commercial segment to recover. But if we focus on the residential segment operating margin, this has increased from 1.3% in June '25 to 2.4% June '26. So this is going on the right way. And what we expect, I say that the total current economic operating margin is expected to gradually improve, but no strong recovery expected clearly before 2027, all of that depending also on the evolution on both the macro and the potential impact of the presidential election in -- but the team efforts are paying now, as you can see in the figures and should help support the recovery of the operating margin, mainly the residential segment.

The next question comes from Paul Ridge from R&C.

Can you just come back -- maybe you gave some information already on the contacts, on the....

Yes, we can hear you, but we can hear other people, there are someone in the background.

Sorry about that. So can you hear my question about the condition of the lease on contacts...

I will answer the question. I don't know we cannot yes, much better. Thanks, Paul. So as for your question on -- we cannot give the full detail on that, but what we can say is this was anticipated, as you know, we were not so worried about the potential break option, but nevertheless, it was anticipated and discussion started 2 years before expiring. We signed this 9-year firm lease on almost 60,000 square meters, no break option even with some potential financial indemnity, so pure 9-year firm. As for the condition, well, clearly, as we usually do, we intend to support the NAV. So when we sign, we commit to sign at the market level. So clearly, we've crystallized some negative reversion, as I highlighted in the presentation, but we signed at the ERV level and the level of incentive was clearly very consistent with the market. We haven't overpaid this renewal to put things really clear. Otherwise, we would not have signed this renewal because as far as we are concerned, we were not worried about the potential break option. So it's a bit like what we do in disposal. If there's a good opportunity, we seize it. And that's what we did with AXA, but we have not overpaid the transaction to be crystal clear on that.

Okay. So does it have any impact on your net asset value because yields are going down and the portfolio valuation is going down too. Does it mean that there is a strong revaluation on the rent side from the experts? And was it triggered by this deal? Not necessarily. And if we look a bit forward, do you think we are at the end of the revaluation process from the experts at this stage of the cycle or not quite sure yet.

Yes. Of course, this deal was shared with the appraisers. This helped supported the valuation, of course, partially offsetting one of the negative impact on the yield. But as for the rents, I mean, as I said, we signed at the market level. So the market levels are already in the valuation and the appraisers assumption on their discounted cash flow. So I mean, it supported those assumptions clearly. And on that, I think that more globally, this -- like the other deal we signed, we have also signed some interesting renewals on Lal KPMG, all of that helps support the resiliency of the portfolio and demonstrate that once again, there's room on the nice and well-located assets. So this has a positive impact that partially offset the negative macro impact on the yields. But as for the valuation, as I said, we are also waiting for the signals on the investment market with new transaction to definitely confirm that we've reached a trough in the valuation.

Okay. Just another question. On the development business, it's going a bit better. Do you think that what we've seen on Q2 on the macro side will impact the figures maybe on the second semester? Or are you confident on that question one. And question 2, can you just come back on your -- on the dividend and if you have any more clarity of the distribution of the gain you had on the assets you sold? And that's it.

Yes. Well, on the development market, as I said, we are confident and cautious. I mean who's not cautious in this geopolitical and French political and stable environment. So -- it's going on the right way. As I said, we've done better in this Q2 than the market. But nevertheless, the higher interest rate will keep on wiring on the lending condition. And on the mortgage loan probably. So on the positive side, there are some new tax incentive measures, but it's still too early to have a meaningful impact on the market recovery. And as the French political market environment is really uncertain due to the presidential election, we will see. But as I said, on the margin, we expect this to slightly recover from month to month and quarter-to-quarter. The main question mark being the pace and intensity of the recovery, I would say, but it's going into the right way. And as for the dividend, well, on this, it's still too early to tell. As we said, we are not sharing any additional figures, especially not on the disposal of Marin, but all of that will depend on the landing point on Icade results at the end of the year. As always, our distribution policy is guided by and will be guided by our financial trajectory and our discipline aims to preserve the balance sheet fundamentals while redeploying capital on accretive way and remunerating the shareholders at a satisfactory level. So still too early to share some precise figures. We'll have to wait for the end of the year, but we're happy to share it as soon as possible.

The next question comes from Martin Kartman from Van Lanchet Kempen.

Two questions from my side. My first question is, could you provide a bit of color on the 15% like-for-like decrease in land values you showed in the report?

Sorry, I didn't hear you very well, Martin. Some color on the... For-like -- on land values -- she is a small part of the portfolio, okay? Yes. I think there was some small adjustment from the appraisers on the land values, but it's not significant at the scale of the whole portfolio. Sometimes it goes up and down. As you know, we've highlighted some new asset class. We'll come back to you with more detail on this. But have in mind that this is not significant at the scale of the portfolio.

Okay. Clear. And could you give any indication of what kind of yield the Portuguese assets were sold and how far off that is from peak valuations?