Icade SA

PAR:ICAD

Q1-2025 Earnings Call

[Operator]

Hello and welcome to the Conference Call Icade Results as of March 31, 2025. Please note this conference is being recorded. [Operator Instructions]

I will now hand you over to your hosts, Nicolas Joly, CEO; and Bruno Valentin, CFO, to begin today's conference. Thank you.

[Nicolas Joly, executive]

Good morning, Nicolas Joly speaking. Well, thanks to everyone for being on the call today.

Well, I'm happy to be here today with Icade's new CFO, Bruno Valentin, who's just joined the group last week. Delighted to welcome him to the team and I'm sure he will make a great contribution to the financial team and to Icade.

So this morning, we are pleased to present Icade's results as of March 31, 2025. This presentation will be, of course, followed by a Q&A session.

So let's move to Slide 5 for an overview of the main messages of the first quarter of the year. The Investment division reported a good rental activity with circa 50,000 square meters signed or renewed during the quarter. This volume was boosted, in particular, by the signing of Pulse building with Seine-Saint-Denis Departmental Council for 29,000 square meters. The resilience of the financial occupancy rate for well-positioned assets was confirmed at 88.4%, excluding the positive impact of Pulse. Revenues were pretty stable with like-for-like growth of 0.5%.

Icade's Property Development business grew in volume and value, supported by good momentum in the residential segment. However, we remain cautious about the pace of recovery, given the still uncertain environment and French political agenda.

On balance sheet aspects, Icade confirmed its very strong liquidity position at EUR 2.3 billion at the end of March. Additionally, in April, the group signed EUR 190 million of revolving credit facilities in attractive conditions in line with existing financing.

Lastly, we reaffirm today our 2025 group net current cash flow guidance presented last February.

Let's look now at performance by business divisions, starting with Commercial Investment. The leasing market got off to a slow start in Q1 2025 with a take-up of 420,000 square meters, down minus 6% compared to the same period last year. Activity was driven by medium-sized transaction of between 1,000 and 5,000 square meters and by positive momentum on the outskirts of Paris.

During the first quarter, Icade's team posted a very good performance with circa 50,000 square meters signed or renewed. These signatures and renewals represent an annual rental income of EUR 12 million and a WALB of 9.1 years. In particular, Icade signed the largest deal of the quarter with Seine-Saint-Denis Departmental Council for the entire Pulse building in Seine-Saint for a 12-year term with no break option. The teams also managed to sign a lease on an extra 4,200 square meter in the Jump building in Aubervilliers with the same tenant. These leases on these assets are due to start in late 2025, early 2026.

Icade also signed or renewed 9 leases covering a total of more than 5,000 square meters in La Defense and Peri-Defense area in Q1 2025. The financial occupancy rate stood at 83.1% as of March 31, 2025, minus 1.6 points compared with December 31, 2024. The decline in the occupancy rate mainly concerns office to be repositioned as expected. In the well-positioned office segment, the financial occupancy rate remained resilient at 88.4%, thanks to leases signed in the next building in Lyon and the Tour Eqho building in La Defense. Taking in account the lease signed in February 2025 for Pulse, the financial occupancy rate of well-positioned offices stood at 91.1%.

Let's now move on to the operational performance of the Development business line. Continuing the trend observed in H2 2024, we've seen a good sales momentum in the residential sector. At the end of March 2025, the Property Development Division recorded 697 orders totaling EUR 209 million, up by plus 16% in volume and plus 22% in value, driven by both individual and bulk orders. Individual orders represented 432 units for EUR 148 million. The growth in value was due to a different product mix with an acceleration in the sale of upscale development projects such as [ 58 Victor Hugo ] in Neuilly and 6eme Art Lafayette in Lyon. Institutional sales were also up, but this is also due to base effect given a low volume in Q1 2024. The institutional investors accounted for 38% of orders in volume terms, which is, as you know, generally less than the final share on a full year basis.

Let's move to Slide 10, in which we present the trend in consolidated revenue as of March 31, 2025. Icade's total IFRS revenue saw an increase of plus 1.2% coming from a slight growth in revenues in the 2 business lines.

Let's jump directly to the next slide for details on Property Investment Division. As of March 31, 2025, gross rental income from Property Investment remained stable at circa EUR 94 million. On a like-for-like basis, the change was plus 0.5% year-on-year. Gross rental income was adversely affected, as expected, by tenant departures in 2024 and negative reversion on renewals. Indexation had a positive impact of plus 3.3%, but at a slower pace than last year. It should be noted that rental income was also boosted this quarter by the positive effect of early termination fees received on offices to be repositioned.

Economic revenue from Property Development amounted to EUR 254 million as of March 31, 2025, down minus 2.2% compared to the same period last year. The changes in revenue reflects differences in performance between market segments. Revenue from the residential segment totaled EUR 205 million, up by plus EUR 16 million compared to the end of March 2024. In Q1, this increase continued to be fueled by the good sales momentum seen in H2 2024 among individual investors and first-time buyers for homes sold individually. Revenue from the Commercial segment was down by minus EUR 32 million compared with the same period in 2024. This is due to the completion of major projects at Envergure in Romainville at the end of 2024 and the absence of new commercial contracts signed in 2025. To be noted also that the economic revenue includes the proceeds from the sale of the Tolbiac building for EUR 19.5 million completed in Q1 2025.

Let's move on Slide 14 for the 2025 guidance. Based on the group results as of March 31, 2025, and year-end forecast, the group net current cash flow 2025 guidance is unchanged. We expect indeed group net current cash flow of between EUR 3.40 and EUR 3.60 per share in 2025. To be noted that the group net current cash flow includes EUR 0.67 per share coming from nonstrategic operations. For the sake of clarity, this amount, as already explained, has been estimated without the impact of disposal of these activities or the repayment of Icade's loan granted to IHE. The guidance will be adjusted in due course as and when disposals are made during the year.

Well, to wrap up, I would say that the limited growth in sales in the first quarter 2025 reflects, in particular, some departures in 2024 and the slowdown in Commercial Property Development activity. Nevertheless, Icade's team achieved a number of very good operational successes at the start of the year, including robust leasing activity with the full re-letting of the showcase Pulse building and growth in housing orders in the Property Development Division. The teams are fully mobilized to continue in this direction and in the deployment of ReShapE strategic plan.

With that, let's start the question-and-answer session.

[Operator]

[Operator Instructions] The first question comes from the line of Veronique Meertens from Kempen.

[Veronique Meertens, analyst]

For me, some questions around your rental income and the like-for-like of that. So I noticed that the well-positioned office are minus 4.3%. Is that purely driven by the Pulse building that's vacated, where on the other side, you see offices to be repositioned at plus 24%? So what's exactly in there?

And then lastly, on the light industrial, again, there was also a slight drop in vacancy and like-for-like below indexation. So I was wondering if you could give an update what you're seeing in that segment and how leasing activity and discussions are going there.

[Nicolas Joly, executive]

Yes. Veronique, thanks for your question. Well, starting with the first question regarding the like-for-like and more especially on the well-positioned offices. This indeed come from 2 main effects. The first one, as you highlighted, is mostly the departure of the Olympic committee on the Pulse building. This is for the first one. And second effect is a base effect as we received EUR 2 million of indemnities on the well-positioned asset last year in Q1 2024. Regarding this like-for-like on well-positioned, we do not expect any further deterioration in 2025 regarding also the financial occupancy rate and the rent growth.

And about the occupancy rate regarding light industrial, where there's a slight decline indeed in line with our expectation, given the announced departures that are now taking effect. On the light industrial, nevertheless, there was some good news to be expected with a signature done in April, which represents more than 1 point in the occupancy rate. We've talked about that in the annual results. We had just delivered roughly 5,000 square meter building that now has been let through the signature of a new lease in April.

[Veronique Meertens, analyst]

Okay. That's very clear. And on rent levels in the light industrial segment, is there still some positive reversion left? Or what's your expectation there?

[Nicolas Joly, executive]

Well, clearly, the light industrial asset class is, in our view, a business that could be impacted by the macroeconomic context. But nevertheless, that is the reason why we are focusing on the [ prime ] location. And regarding that, fortunately, Icade offers unique location selective on prime lettings. We are able to crystallize some positive reversion in the new leases we are signing. But once again, this should, in our view, stabilize given the macro in the coming months and years.

[Operator]

The next question comes from the line of Stephane Afonso from Jefferies.

[Stéphane Afonso, analyst]

Three questions, if I may. The first one on offices. Would it be possible to provide an update on the EQHO Tower, particularly in terms of lease expiries as I understand that the lease with KPMG is set to expire by the end of the year? Also on offices, are there currently any advanced negotiation in asset disposals?

And finally, on Icade Promotion, orders increased in volume -- in value terms, and it suggests that prices have decreased high single digits. And I was wondering to what extent has the mix effect contributed to this growth.

[Nicolas Joly, executive]

Okay. Thank you, Stephane, for the questions. Starting with offices on the EQHO Tower, indeed, we saw that -- this clearly benefits from the improvement in the macro dynamics of La Defense District, as you saw. And we've signed some new leases last year and this year on the EQHO Tower. Indeed, the major tenant of the EQHO Tower is KPMG, as you know, with an end of the lease, which is in 2027, likely. As you know, we have close relationship with all our tenants and especially with our major tenants. So, of course, we are in close discussion with KPMG regarding what they intend to do in 2027, but discussions are great with them. And the EQHO Tower is honestly attractive, in our view, as an asset benefiting from the strong fundamentals of La Defense and the fact that it offers affordable rents, which, given the outlook on the macro could be attractive for some tenants in our view.

As for asset disposal, well, no major announcement to be made since February. But once again, we stick to our strategy, focusing on the one hand on disposal of nonstrategic assets and also some mature assets when we are able to find some liquidity such as what we've done last year

[Audio Gap]

Action, and that's exactly what we intend to do this year. So maybe more to come for the half year results. But we see that there are still some money when the assets are mature on strong fundamentals market.

And as for Icade Promotion, as I said, sharing the results on Q1, indeed, there was some good news, positive figures, especially on the individual. On the value in Q1, as I said, the main reason comes from the fact that there is a mix and especially this was driven by some sales made on our Neuilly development, which is the refurbishment of the former hotel assets into some more premium housing lots, which are doing quite well actually. So this is one of the reasons expecting the difference between value and volume evolution regarding [ individuals ].

[Operator]

[Operator Instructions] The next question comes from the line of Sam King from BNP Paribas.

[Samuel King, analyst]

Just 1 question, please, on the Paris occupational market. You mentioned that it's been a slow start to Q1 with take-up down 6% year-on-year. But also one of your peers reports this morning that La Defense take-up is up 15% year-on-year. So I would just be interested what you're seeing on a regional-specific basis within Greater Paris as it seems like there's quite a wide divergence in performance.

[Nicolas Joly, executive]

Yes. Thank you, Sam, for the question. Well, exactly that's what we saw. There was a slight decrease, minus 6% indeed in the take-up of space in the Paris region. And this was quite heterogeneous performance by [ zone ]. And indeed, the Western Cretions, including La Defense has done quite well with plus 16% at roughly 130,000 square meters. It was driven by mostly the first ring. That's exactly what we see in the discussion we have with some prospects where you are able to offer, I mean, the well-positioned asset with the good criteria and when you are located on the major transport hub, where you are able to re-let. So that's exactly what we see on a daily basis through the discussion the operational teams have with some existing tenants on site and new potential tenants with whom we are discussing. And that supported, as you saw, the strong figures on our operational performance this quarter because signing 50,000 square meters for first quarter of the year is definitely a very good performance.

[Operator]

The next question comes from the line of Eleanor Frew from Barclays.

[Eleanor Frew, analyst]

Just one for me. On the to-be repositioned offices, I think you flagged you expect to lose rent there this year. But maybe how does that 50% occupancy compared to your expectations? And where do you expect the occupancy in that segment to end up at the end of the year?

[Nicolas Joly, executive]

Okay. Eleanor, thanks for your question. Yes, indeed, it's in line with our expectation. As we are -- we've shared transparently with you, we expect most of the to-be repositioned asset to be vacated and emptied out at one point. That's exactly what we see. Even if from time to time, we are able to secure some pragmatic discussion with some tenants such as [ SNCF and Le Millenaire ] with 15,000 square meter like what we shared on the full year results. But nevertheless, at one point, we expect those buildings to be emptied out.

So clearly, in a way, the occupancy rate on those assets at one point does not have a full relevancy, I would say, because at one point, they'll be emptying out fully. So this is in line with what we expect. Have in mind that, as shared during the full year results, there are still a bunch of to-be repositioned assets contributing to the expiry schedule for 2025, roughly EUR 13 million. But that's the reason why we expect this occupancy rate to keep on lowering down, while in the same time, the operational teams are fully committed to redevelop those assets successfully because, for example, I've talked about the 6eme Art Lafayette redevelopment in Lyon. And clearly, this one supporting the good figures on housing lots in the Property Development Division for this quarter, while those 100 housing lots redevelopment comes from a former office building to reposition. So while those buildings are emptying out, the operational teams fully committed to work on the redevelopment scenarios.

[Operator]

The next question comes from the line of Neeraj Kumar also from Barclays.

[Neeraj Kumar, analyst]

Just a quick one from my side. How are you thinking about the refinancing of 2025 and 2026 debt maturities? Do you think the bond market is attractive for a potential refinancing?

[Nicolas Joly, executive]

Neeraj, thanks for your question. Well, as for the financing, clearly, the financing costs are impacted by the volatility on credit and equity markets, clearly. But we have been cautious in our guidance with a target cost of funding to maintain at between 4.5% and 5%. So that's what we expect. We are looking at the opportunity in order to manage, as we've done in the past, closely our balance sheet and the lines that will mature in 2026 and 2027.

[Operator]

[Operator Instructions] The next question comes from the line of Florent Laroche-Joubert from ODDO BHF.

[Florent Laroche-Joubert, analyst]

I would have 1 question actually on the guidance. So we understand that you remain cautious at this stage for the rest of the year. Your guidance can be considered as conservative. So how can we consider today's this guidance as a flow? And what could drive -- so based on these figures at the end of Q1, what could drive now later in the year to an upgrade of the guidance?

[Nicolas Joly, executive]

Okay. Florent, thanks for your question. Well, once again, if we look back at the guidance, so 2025 guidance, so between EUR 3.40 and EUR 3.60 per share, we took indeed a cautious approach on business lines given the current environment. We -- as for the Investment division, we plan a decrease in rental income due to decline of positive effect of indexation and the full year effect of 2024 tenant departures, which is already, as you saw in the figures, quite crystallized in the Q1 figures.

And as for the Property Development business, we expect improvement in profitability after the strong impairment losses in 2024, expecting to return to breakeven in '25. But even if there are some positive signs, well, I mean, good news can always wait. So that's the reason why we remain cautious. There are still some uncertain political and tax environment in France and there's the global macro.

And as for the health care activities, we try to figure a dedicated assumption of EUR 0.67. You know how this is based to be easier for you to model. And we'll, of course, update this figure when and how the disposal will be made regarding the health care.

[Operator]

There are no further questions. So I'll hand back over to you to take questions from webcast, if it's the case.

[Nicolas Joly, executive]

Okay.

[Operator]

There are no further questions coming from phone lines. So handing over back to you.

[Nicolas Joly, executive]

Okay. Great. Thank you very much. Well, we were happy with Bruno to have you around the call today. Looking forward to seeing you soon and share, of course, the half year in July. But looking forward to seeing you before that. Have a nice day, and enjoy the rest of the week. Bye-bye.

[Operator]

Thank you for joining today's call. You may now disconnect your lines.