Icade : Solid H1 2022 results

PRESS RELEASE

Paris, July 25, 2022, 7:00 a.m.

ICADE: SOLID H1 2022 RESULTS

REVENUE UP +6.3% TO €823M

NCCF UP +7.1% TO €205M

EPRA NDV PER SHARE UP 19.9% YOY

FY 2022 GUIDANCE UNCHANGED

Growth in Group results driven by strong operating performance across the three business lines

• Revenue up +6.3% to €823m on a proportionate consolidation basis
• Net current cash flow up +7.1% to €205m (+5% to €2.7 in per share terms)
• EPRA NDV up +13.8% over 6 months to €103 per share (+19.9% year-on-year); EPRA NTA up +1.8% over 6 months to €96.2 per share (+5.2% year-on-year)
• Net profit attributable to the Group: €351m, +68% vs. June 30, 2021

Office and Healthcare Property Investment Divisions: robust leasing activity and higher portfolio values

• Higher gross rental income on a proportionate consolidation basis: +3.9% to €285m
• EPRA earnings from Property Investment: €192.8m, i.e. +6.6%
• Over €480m of disposals in H1
• Further investments in Healthcare Property Investment Division for nearly €170m
• Portfolio values up by +1.7% like-for-like across both Property Investment Divisions: o Office Property Investment portfolio: +1.3% like-for-like
  o Healthcare Property Investment portfolio: +2.4% like-for-like

Property Development: Continued strong sales momentum, improved results

• Economic revenue stood at €574m, up +7% vs. H1 2021
• Record number of new listings (nearly 50 in H1 2022); orders up +15% in value terms
• NCCF up +19%
• Leading indicators on a positive trend: residential backlog up by c. 3%; revenue potential from the portfolio of controlled residential land at €3.1bn1, up +14% compared to December 2021

Balance sheet structure further strengthened in H1 2022

• Average cost of debt at 1.19%: issue of an 8-year €500m green bond with a coupon of 1% in January 2022
• LTV ratio down to 38.8% and ICR up to 6.6x
• BBB+ rating with stable outlook affirmed by S&P for both Icade and Icade Santé in July 2022

2022 guidance unchanged

• 2022 Group net current cash flow per share: up c. +4% excluding the impact of 2022 disposals
• 2022 net current cash flow from Healthcare Property Investment: up c. +5% to +6%
• 2022 dividend: up c. +3% to +4%, subject to approval by the 2023 General Meeting

"Despite a turbulent economic and financial environment, our solid operational and financial performance in the first half of the year, with net current cash flow up by more than 7%, illustrates the strength of our three business lines and how our strong momentum in 2021 carried over to 2022. Supported by the quality of its assets and an excellent tenant base, the Office Property Investment Division further demonstrated the strength of its fundamentals and the continued progress of its disposal plan on favourable terms. The Healthcare Property Investment Division once again delivered strong rental income growth and expanded its footprint in Southern Europe. The Property Development Division's sales indicators remained strong, with good progress being made on its roadmap and improved margins despite rising inflation. Our balance sheet was further strengthened in the first half-year, with an improvement in all debt ratios, driven by the momentum of our business lines and a very low average cost of debt, which is expected to remain so for several years to come. As such, Icade is looking forward to the coming months with considerable confidence despite high inflation and rising interest rates. We remain focused on our goal of achieving steady growth in net current cash flow and dividends."

Olivier Wigniolle, CEO of Icade

1 On a proportionate consolidation basis and excluding taxes

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		06/30/2021
	06/30/2022	Restated*	Change (%)
IFRS revenue (in €m)	871.6	830.0	+5.0%
Revenue on a proportionate consolidation basis (in €m)	822.8	774.0	+6.3%
EPRA earnings from Property Investment (in €m)	192.8	180.9	+6.6%
Net current cash flow from Property Investment (in €m)**	197.3	187.4	+5.3%
Net current cash flow from Property Development (in €m)	12.9	10.9	+19.0%
Group net current cash flow (in €m)	204.7	191.1	+7.1%
Group net current cash flow (in € per share)	2.70	2.57	+5.0%
Net profit/(loss) attributable to the Group (in €m)	350.8	209.4	+67.5%
	06/30/2022	12/31/2021	Change
EPRA NTA per share (in €)	€96.2	€94.5	+1.8%
EPRA NDV per share (in €)	€103.0	€90.6	+13.8%
Average cost of drawn debt	1.19%	1.29%	-10 bps
LTV ratio (including duties)	38.8%	40.1%	-135 bps

• Icade applied the fair value model for the measurement of investment property for the first time in the financial statements for the year ended December 31, 2021. This change in policy was applied retrospectively and the June 30, 2021 financial statements were restated.
• NCCF from Property Investment is equivalent to EPRA earnings adjusted for the depreciation of operating assets

1. Performance by business line

1.1. Office Property Investment: resilient business, continued dynamic asset rotation and a higher portfolio value

A solid tenant base and a robust asset management activity

Gross rental income on a proportionate consolidation basis from Office Property Investment amounted to €181m in H1, down slightly (-0.8%) compared with H1 2021. This decline was due to the significant disposals in 2021 and 2022, which were not fully offset by additional rental income from acquisitions in 2021 (Equinove and Prairial) and completions (including Fresk and Origine).

Excluding the impact of these disposals, gross rental income would have risen by +5.9%.

As expected, the like-for-like decline in the financial occupancy rate due to the departure of two tenants in the Eqho Tower in La Défense in 2021 and the renewal of the 75,000-sq.m AXA lease in line with market rents led to a like-for-like drop of -3.5% in rental income in H1.

It should be noted that AXA, our largest tenant in the four Grand Axe buildings in Nanterre-Préfecture, renewed its lease for nearly 75,000 sq.m, ensuring rental income well into the future. This means that 100% of the floor area has been renewed for 9 years in line with market rents as of December 31, 2021.

Index-linked rent reviews resulted in rent increases of +2% on average in H1. This figure is expected to rise to +3% for the year as a whole.

The Asset Management teams remained highly active in H1, with 54 leases covering more than 60,000 sq.m signed or renewed. These leases represent €11m in annualised headline rental income and have a WAULT to break of 6.8 years.

• These figures take into account space in the 15,000-sq.m NEXT project (Part Dieu district, Lyon) pre-let to tenants that include a first-class company for a 12-year term with a break option after 9 years;
• These new leases were signed at rents broadly in line with market levels.

The financial occupancy rate stood at 87% as of June 30, 2022. This occupancy rate, close to the one observed at the end of 2021 (88.1%), was impacted by the 2021 disposal plan, the H1 2022 sale of four fully leased mature assets and, as announced at the Full Year Results, the completion of two new-build assets meeting the highest standards (Origine and Fresk), part of which is currently being let.

Although there were no significant tenant departures in H1, more time was needed to find tenants given the uncertain economic climate.

The weighted average unexpired lease term to first break stood at 4.0 years.

The average annual rent collection rate stood at nearly 99%, reflecting the strength of the Office Property Investment Division's tenant base, more than 70% of which comprises CAC 40, SBF 120 and public sector companies.

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H1 investments focused on the development pipeline

Total investments as of June 30, 2022 amounted to €123m (c. €115m on a proportionate consolidation basis), down almost €33m compared to H1 2021, including:

• Investments in the development pipeline for nearly €80m, mainly relating to the following projects:

1. The Edenn building in Nanterre-Préfecture for c. €24m, nearly 60% pre-let to Schneider Electric and scheduled for completion in

Q2 2025;

1. Jump in the Portes de Paris business park for €18m, a project currently being developed which has been pre-let on a 12-year

lease;

• 1. The Athletes Village in Saint-Ouen for €12m, Grand Central in Marseille for nearly €5m and the B034 hotel in Pont de Flandre for €4m.
• "Other capex" for €42m related mainly to maintenance work and improvements in technical and environmental quality.

In addition, pursuant to the agreements signed in 2017, Icade and Covivio exited their Quai 8.2 co-development project in Bordeaux on January 18, 2022 by exchanging two assets, namely Orianz and FactorE in Bordeaux-Euratlantique. This transaction resulted in Icade acquiring 100% of Orianz and selling 100% of FactorE to Covivio. Including this transaction, investments for the period totalled €155m (on a full consolidation basis).

In H1, the NEXT project, an office building covering more than 15,000 sq.m in the Part-Dieu district in Lyon, was added to the pipeline of projects launched, with 100% of its floor area pre-let2 to a first-rate tenant. The project represents a total investment of €100m.

As of June 30, 2022, the development pipeline amounted to €1.3bn, representing more than 162,000 sq.m including nearly 108,000 sq.m for projects already launched, which have been 40% pre-let (+10 pps vs. December 31, 2021).

Excellent progress on 2022 disposal plan

The Office Property Investment Division continued the implementation of its asset rotation plan with the disposal of two mature assets completed in H1 2022 for a total of more than €400m:

• Sale of the c. 25,000-sq.m Millénaire 4 building in the Millénaire business park (Paris, 19th district) for €186m to Générale Continentale Investissements and BlackRock Real Assets;
• Sale of the 20,000-sq.m Gambetta building (Paris, 20th district) to funds managed by Primonial REIM France for €219m.

These two transactions, carried out with leading institutional investors above the appraised values as of December 31, 2021, demonstrate institutional investors' strong appetite for mature assets and the appeal of Icade's office property portfolio. With these sales, the Office Property Investment Division has completed a significant portion of its 2022 disposal plan.

Taking into account other disposals (€5.0m) and the sale of Factor E, disposals as of June 30, 2022 totalled €442m.

Like-for-like increase in portfolio value

As of June 30, 2022, the Office Property Investment portfolio was worth €8.2bn on a proportionate consolidation basis, a drop of -2.3% on a reported basis compared with December 31, 2021. This decrease was the result of sales, with the business line being a net divestor in H1 2022.

On a like-for-likebasis, the value of the portfolio was up +1.3%, driven in particular by the higher value of assets located in Paris (+5.3%), outside the Paris region (+5.7%) and in our business parks (+2%).

On a full consolidation basis, the portfolio was valued at €8.6bn.

1.2. Healthcare Property Investment: An expanded footprint in Southern Europe, portfolio value continues to rise in a highly competitive market

Strong growth in leasing activity, mainly driven by acquisitions

Gross rental income from Healthcare Property Investment in H1 2022 amounted to €104.4m on a proportionate consolidation basis, up +13.4% on a reported basis (+€12m) compared to H1 2021, mainly driven by 2021 acquisitions both in France and internationally.

On a like-for-likebasis, gross rental income grew by +1.7%, primarily due to index-linked rent reviews during the period.

• France: gross rental income of €90m on a proportionate consolidation basis (€155m on a full consolidation basis), up +6.5% thanks mainly to acquisitions and developments in 2021 (private not-for-profit hospital in Grenoble, Grand Narbonne private hospital, Le Parc polyclinic in Caen, Les Buissonnets PAC facility in Olivet);
• International: gross rental income soared by more than 93% to almost €14m (€24m on a full consolidation basis) due to the acquisitions in 2021 in Portugal, Italy, Germany and Spain. On a like-for-like basis, the change was +2.4%.

2 Including 15% subject to an exclusivity agreement

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The Healthcare Property Investment Division's gross rental income can be broken down by asset type as follows: acute care (private hospitals and other healthcare facilities) accounts for 78%, medium-term care (post-acute care and mental health facilities) for 7% and long-term care (nursing homes) for 15%.

Regarding the impact of rising indices, as with the Office Property Investment Division, the Healthcare Property Investment Division's leases are linked to indices with a strong inflation component. As of June 30, 2022, index-linked rent reviews resulted in rent increases of 1.7% on average, which positively impacted rental income on a like-for-like basis.

These increases for the year as a whole are estimated at around +3% (70% of index-linked rent reviews in France to be concentrated in H2).

The financial occupancy rate of the portfolio as of June 30, 2022 remained unchanged at 100%.

The WAULT to first break stood at 7.9 years, up from 7.3 years as of June 30, 2021 and down slightly from 8.2 years as of December 31, 2021. On average, it stood at 6.6 years for assets in France and 15.8 years for assets outside France.

Year-to-date investments as of June 30, 2022: continued international growth

After a very significant volume of acquisitions in Q4 2021, investment activity in H1 2022 saw transactions worth €167m (€98m on a proportionate consolidation basis), including:

• International acquisitions worth €92m (€54m on a proportionate consolidation basis):

1. Acquisition in Spain of a portfolio of six long-term care facilities3 for people with disabilities operated by the Colisée Group for

€56m;

1. Acquisition of a private hospital in Rapallo, Italy, for €22m as part of a preliminary agreement signed with Gruppo Villa Maria in

20214;

• 1. Acquisition of an eye clinic in Madrid operated by the Miranza Group for €13m.
• Preliminary agreements signed but not yet paid for, amounting to €39m (€23m on a proportionate consolidation basis), including a private hospital extension project in Rapallo, Italy, signed with the operator Gruppo Villa Maria for €23m;
• Capex for development projects in France worth €23m.

The Healthcare Property Investment Division is currently assessing several potential investments in France and abroad, against a backdrop of rapidly evolving financial markets and direct real estate investments that remain, however, very competitive.

To date, the Healthcare Property Investment Division also has a portfolio of projects under an exclusivity agreement worth around €500m.

A dynamic development pipeline

As of June 30, 2022, the Healthcare Property Investment Division had a development pipeline of €430m (€254m on a proportionate consolidation basis), the international portion of which (€301m) increased following the addition of new projects.

In addition, the Healthcare Property Investment Division completed four projects from its pipeline, immediately generating additional annualised rental income of over €3m;

• In France: two projects worth a total of €31m on a full consolidation basis (€18m on a proportionate consolidation basis) were handed over to healthcare providers (extension and refurbishment of the Saint-Roch polyclinic in Cabestany and extension of the Le Parc polyclinic in Caen);
• Outside France: handover of the Tangerhütte nursing home in Germany to Emvia Living and acquisition of a private hospital operated by Gruppo Villa Maria in Rapallo, Italy, pursuant to a preliminary purchase agreement. These two projects represent a total investment of €30m on a full consolidation basis (€18m on a proportionate consolidation basis).

Entirely pre-let, this pipeline will eventually generate an additional €13m in rental income on a proportionate consolidation basis (€22m on a full consolidation basis), with an estimated average yield on cost of 5.1%.

As a reminder, the Healthcare Property Investment Division's investment plan for 2021-2025 amounts to €3bn, i.e. an average annual investment of €600m. At the end of June 2022, this plan had already been nearly 35% completed.

Disposals

On June 28, 2022, Icade Santé completed the sale of four healthcare properties in France to a French institutional investor for €78m (net selling price). The portfolio sold covers nearly 26,000 sq.m. The sale price, nearly 10% above the most recent appraisal values, reflects the appeal of private healthcare real estate in France, which currently represents nearly 80% of Icade's Healthcare Property Investment portfolio.

Like-for-like increase in portfolio value

As of June 30, 2022, the Healthcare Property Investment portfolio was worth €4.0bn on a proportionate consolidation basis (€6.8bn on a full consolidation basis), up +2.6% on a reported basis compared to December 31, 2021 and +2.4% like-for-like.

1. five of them are already in operation, while the acquisition of the last asset (currently under development) is expected by the end of 2022, once the required permits have been obtained
2. for the acquisition of three private hospitals in Italy in 2022

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This rise reflects the strength and attractiveness of the asset class, which was reinforced by the sale of acute care assets in France in H1 2022 (5-bp yield compression in the acute care portfolio in France). There was also yield compression in assets in Germany (7 bps).

The Healthcare Property Investment Division's combined financial statements as of June 30, 2022 are available on the icade.fr/en and icade-sante.eu websites.

1.3. Property Development: Solid business and financial performance in H1

Sales momentum remains strong, positive operational indicators across the business line

• Indicators for the residential segment pointing in the right direction at the end of H1 2022

After record highs in 2021, orders were up +15% in value terms compared with June 30, 2021, reaching €678m. This increase was driven by strong demand from individual buyers and a higher average price per unit due to the increased share of transactions relating to more expensive development projects located in the Paris region (average order price per sq.m up by +18% to €5,001/sq.m in H1 2022 vs. €4,240/sq.m in H1 2021).

The Q2 momentum was particularly strong, leading to a more robust business performance than 2019, 2020 and 2021, with a total of over 2,000 units across nearly 50 new development projects put on the (still undersupplied) market.

Rising construction costs and the need to maintain profit margins have led to lengthier negotiations on construction contracts, which may in turn result in delayed construction starts. However, given the strong sales performance for projects under development, the delays noted in construction starts have not yet called into question expected revenue growth for 2022 as a whole.

• Strong momentum in the office segment, with off-plan sales representing more than 52,000 sq.m and worth €192m in value terms, up +5% vs. H1 2021, including:
• • An off-plan sale agreement worth €147m signed with Goldman Sachs for the first phase of the Envergure complex in Romainville (Seine-Saint-Denis), which covers more than 33,000 sq.m and is being jointly developed with the SEMIIC Group;
  • An off-plan sale agreement worth €20m signed with INEA for a c. 11,000-sq.m building complex in the Carré de Soie business district near Lyon.

The momentum continued in July with the signing of a preliminary off-plan sale agreement with a leading investor for the refurbishment and extension of an existing asset for more than 13,000 sq.m in the heart of the Part-Dieu business district in Lyon, jointly developed with SOGEPROM. This transaction represents revenue of nearly €55m based on proportionate consolidation of Icade Promotion.

• Economic revenue as of June 30, 2022 amounted to €574m, up +7% compared with June 30, 2021, mainly driven by the continued excellent sales performance and, to a lesser extent, by the acquisition of the M&A Group in H1 2022.
• • Revenue from Residential Property Development rose by 3.7% to €475m, thanks to the progress made on projects included in the backlog in previous quarters and a strong sales performance. Bulk sales expected in H2 should drive the growth of this segment for FY 2022 as a whole;
  • Revenue from Office Property Development also increased significantly by +27% to €97m.
• This volume growth together with solid profit margins saw the current economic operating margin rise to 5.5% in H1 2022 vs. 5.0% as of June 30, 2021.
• As a result, net current cash flow went up by 19% to €13m (vs. €11m as of June 30, 2021).

Expanded footprint in the Occitanie region with the acquisition of the M&A Group

Following the acquisition of Ad Vitam in 2020, Icade Promotion strengthened its presence in the Occitanie region in H1 2022 with the acquisition of a 50.1% stake in the M&A Group, a Montpellier-based property developer operating since 2004. Icade Promotion will steadily increase its stake in the M&A Group to 65% in 2023 and become its sole owner by 2025 at the latest. The acquired portfolio of development projects represents potential revenue of around €170m (excluding taxes) over the next three years.

Leading indicators pointing up, growth potential remains strong

Leading indicators for revenue (controlled land portfolio for the residential segment and backlog across all segments) remain high, ensuring expected revenue for 2022.

• The total backlog of the Property Development Division as of June 30, 2022 stood at €1.7bn, stable with respect to December 31, 2021 and up c. 3% for the residential segment;
• The portfolio of controlled residential land and building plots continued to expand. It comprised nearly 13,800 units, representing potential revenue of €3.1bn on a proportionate consolidation basis (excluding taxes), which included an increase of +14% for the residential segment.

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