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Edited Transcript of ICAD.PA earnings conference call or presentation 22-Jul-19 8:00am GMT

Half Year 2019 Icade SA Earnings Call

Issy-les-Moulineaux Jul 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Icade SA earnings conference call or presentation Monday, July 22, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Antoine de Chabannes

Icade - Head of Portfolio Management, Valuation & the Residential Division

* Emmanuelle Baboulin

Icade - Head of the Property Investment Division

* Frédéric Thomas

Icade - Chairman of the Board

* Olivier Wigniolle

Icade - CEO

* Victoire Aubry

Icade - Head of Finance, Information Systems & Work Environment

* Xavier Cheval

Icade - CEO of Icade Santé & In charge of the Healthcare Property Division

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Conference Call Participants

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* Celine Huynh

Barclays Bank PLC, Research Division - Research Analyst

* Peter Papadakos

Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst

* Pierre-Emmanuel Clouard

Kepler Cheuvreux, Research Division - Equity Research Analyst

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Presentation

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Frédéric Thomas, Icade - Chairman of the Board [1]

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[Interpreted]

Good morning, everyone ladies and gentlemen. I'm very happy to see you here on our premises at Icade in the open building which is our head office as you know. So that we can release the results for the first half. Before I turn over to Olivier Wigniolle, our CEO and his team to comment upon our performance, I wanted to say a few introductory points which has impacted our governance in our company following the AGM meeting of the April 24. This AGM with the subsequent board meetings renewed the term of office of Olivier Wigniolle as CEO of Icade, which was done unanimously for the next 4 years and introduced some changes and clarification in the way the Board of Directors has been operating. In addition to appointing me as a Chairman, the Board of Directors appointed Florence Peronnau as a Lead Director and Deputy Chair of this Board of Directors of Icade and 3 new board members have joined us Gonzague de Pirey, Waël Rizk and Emmanuel Chabas.

So 2 directors left. We appointed 3 new directors. The AGM approved 3 -- these 3 directors, which had our Board go from 14 members to 15 members with 5 independent directors and 40% of female directors and we are compliant with the AFEP-MEDEF code. And also this has been our policy for the last few years.

We have reinforced the systems to prevent any conflict of interest inside our Board of Directors with respect to some of our board members. And this was introduced jointly with the partial revamping of our internal regulation so much for the few introductory remarks on our governance systems following the decision made by the Board of Directors following the AGM of the 24th of April.

Now let us review the performance as at the 30th of June, 2019.

As you can see, and as you will hear today, this performance is on track and consistent with and in-line with the strategic plan, which was put forward in late 2018, covering 2019, 2022. And this performance and you will hear about the main items which have substantiated this strategic plan and goals and you will see and this can be seen in our presentation desk -- deck, that we have recalled it very high momentum, very high degree of dynamism, especially in 2 business lines.

The Healthcare division and the Property Investment division office park. We have significantly invested as well in a number of operations, which we'll give you more detail on in a few minutes.

So have a great meeting. I will now turn over to Olivier Wigniolle.

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Olivier Wigniolle, Icade - CEO [2]

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[Interpreted]

Thank you, Frédéric, and good morning, everyone. Now to start off this presentation meeting. You have here an overview of our key indicators. Net rental income up 6.1% to EUR 306 million. EPRA earnings from Property Investment up from 5.8% to EUR 2.23 per share with a difference between Property Investment, Healthcare and offices, portfolio value up 3.7% to EUR 11.7 billion, and financial occupancy rates slightly down 50 bps to 91.8%.

Some more of a drop for Property Development, which was announced with the cyclical impact in the real estate -- in the commercial real estate markets. So with Property Development business down 25.7% to EUR 388.5 million. Net current cash flow down 14.7% to EUR 13.8 million, yet return on equity, which we consider satisfactory at 16% and with respect to some positive factors connected with what we've observed with market momentum that is property development backlog, up 3.8% at EUR 1.2 billion with a sharp increase in residential backlog.

With respect to our liabilities, cost of debt has been stable at 1.53%, taking into consideration some good tailwinds average debt maturity in excess of 6 years, 6.3 years. And with respect to the combined key indicators, EPRA NAV per share 92.3% (sic) [EUR 92.3], up 2.7%.

EPRA triple net asset value down 0.5% to 89.3% (sic) [EUR 89.3]under the fair value development of debt with IFRS impact and net current cash flow per share for the company standing at EUR 2.36 per share, up 4.5% with respect to our various business lines, with respect to the offices, Property Investment division.

The office market has been considered "resilient" with a sharp decrease in transactions down 19% versus the first half of 2018, still remaining at a very high degree with more than 1 million square meters of transactions, a bit more than 2 million for the year, which makes the Paris region market, the deepest and most liquid market in Europe, following 2017 and 2018, which were record year's vacancy rate remaining stable at a very low level at 5.3% with a very high absorption of the new supply as a developer.

Of course, this is of great importance for us with only 15% of vacant space in new build with a pipeline for the Paris region with some pre-letting on the order of 40% and with a strong activity in major cities, which has showed up our strategic goals. And with respect to our real estate investments going against the trends of last year, the drop in long-term interest rates will see an influx of capital in the real estate market, which remains the first alternative market class, more specifically with respect to Icade.

We always have been very active on the transaction side, on the rental transaction side with signing of new leases and renewals with some 117,000 square meters signed or renewed for the first half, about half-half with new signings and renewals.

With new leases starting for some 90,000 square meters with a EUR 25.5 million in headline rental income. A number of those projects being in the French region, outside of Paris, another factor which we consider as a good tailwind, which is the like-for-like development of gross rental income, which reflects our own rental business development with a change in market values. Gross rental income being up 3.1% and in the bottom part of the slide, you have the illustration of the key transactions with leases starting in the first half.

The Spring building in Nanterre, the Gambetta, Paris fully let in the 20th district and with some significant transactions for the Québec building in the Rungis Park with a new lease with Bridgestone and the Thalès lease being renewed. We were quite active with the completions in the first half, in late 2015, 2016, we revived some development programs -- projects and these are kicking in now.

We've completed 5 such projects in the first half, for some 84,000 square meters with an investment on the order of EUR 434 million with a value creation as at the 30th of June, across these 5 completions, value creation on the order of EUR 134 million versus an investment of EUR 433 million giving good development margin, pre-letting, pre-commitment rate in excess of that of the market.

On the order of 62%, EUR 17 million secured, signed of rental income with the first-class tenants and additional rent of some EUR 18 million. So the Spring building in Nanterre, Pulse in Saint-Denis, Gambetta in Paris, the Castel building in Marseille and the Factor E in Bordeaux.

Now moving on to Slide #12 to review the key figures for the office investment division. Portfolio value as of the June 30, 100% on a 100% basis of EUR 9.3 billion, group share EUR 9.1 billion with some minority interest being excluded. Weighted average unexpired lease term improving to 5 years due to new leases and renewals. Financial occupancy rate at 91.8%, slightly down due to the 5 completions, which were delivered in the first half, not due to any tenants leaving but we had 5 new buildings joining our portfolio.

A number of them -- of those not being fully let, which has had an impact on our financial occupancy rate. Average net yield slightly down from 5.9% down to 5.7% but it's still positive news, translating the fact that some of our buildings in the pipeline underdevelopment will be sublet and even though it's a bit more minor, we have a yield in a -- market-market yield is slightly down.

So 1.8 million in total floor area with average price per square meter, which is a basic key indicator, which remains according to us quite prudent, quite conservative despite the strong increase or strong fluctuations of yields even if we compare ourself with the Paris market we are quite convinced that there is high improvement potential on rental with 8,000 square meters for the Paris region office, 3,200 for offices outside of the Paris region and 32 -- EUR 2,300 (sic) [2,300] for the business parks in the Paris region.

We often had a question, how like-for-like rent changed over time? So there are some intrinsic aspects, the fact how we manage our portfolio, how we occupy, you have the market value fluctuations as well but we can see that since mid-2017, there is an increase, which is quite of interest for us.

Now a few words on the office investment pipeline. This is Slide 13, on the right-hand side, we go from EUR 2.5 billion down to EUR 2 billion due to the 5 completions we delivered in the first half and we also launched a new significant project the so-called Fresk building, which is top right picture, which is the former head office of Technicolor in Issy-les-Moulineaux near Porte de Versailles with completion scheduled in 2021 with Technicolor knowing that -- we knew that Technicolor would be leaving when we bought out this building. So 17 operations in total in the pipeline. EUR 1.9 million, 340,000 square meters.

So we have some EUR 1 million in investment amount connected with this pipeline. And we are expecting from this potential rental income of some EUR 124 million and some EUR 500 million in value creation and these numbers appear consistent with what was achieved in the past and with our recent performance and as early as the second half of this year, again, we'll have 4 new completions with -- especially, in the French regions with a smaller surface areas but with some EUR 5 million in rental income, which has been signed, especially in this segment of our portfolio, Icade has been very bullish in the first half.

A few words now concerning Healthcare sector. We'd like to remind you that starting on the 1st of May, this year, it's Xavier CHEVAL, who is here on my right, who has taken over the General Management of Icade Santé, Icade Healthcare and Xavier had been supporting the development of Icade Santé since the beginning and there has been this very smooth managerial transition.

So Icade Santé, Icade Healthcare is operating in favorable market conditions. We have partners and operators and clients but I think the key element to remember here is the rise in the tariffs decided by the French government for clinics, so first time in 5 years because operators were under pressure for low tariffs and low pricing and the decision taken by the Ministry of Health has been extremely favorable for our operating clients and the forthcoming law on dependency expected in the second half of the year should as far as we can see and as we're familiar with the contents of that law, we should also give a very favorable element for operators in the area of dependency.

Concerning the more specific market of Healthcare properties, we had volumes expected of investment for EUR 750 million for the year and you saw that we've also announced the acquisition of some EUR 111 million -- EUR 191 million in this market and with the transaction should be closed at the end of July, beginning of August and as usual, this is carrying our strategy, which is a strategy, which is not limited to France but is developing increasingly in the European market, some EUR 6 billion in 2018 and we have 3 major portfolios recorded for sale in the market. So the attractiveness of Healthcare is been very bullish, very strong in this.

Thanks to the acquisition led growth and completions in 2018 with rental income up by 12.3% to some EUR 130 million. And I should also mention there's also been the rise of like-for-like leasing prices of close to 8% and this takes us well beyond the indexation level.

We've also started a number of leases lengthening the average duration and concerning our 2 diversification's, 1 very significant in long-term healthcare for 12 healthcare facilities for EUR 191 million and we're also continuing to develop internationally with new acquisitions in the first half more modest, but some EUR 12 million in Italy and we're continuing to roll out our strategy in line with our roadmap. Key figures for Healthcare investment, portfolio of EUR 4.5 billion compared to EUR 2.6 billion. If you take minority shareholding and the net yield is stable at 5.8% excluding duties. This is a very attractive level when you see the long-term rate without risk and the premium here for healthcare is among the most attractive in the market and with a financial occupancy rate of 100% and then the weighted average lease duration, now at 7.6 years.

Concerning Icade Promotion. The environment here is rather special. Our analysis is that demand is remaining strong and in particular, for -- the mortgage rates have never been so low. On average, 1.3% and we see also in the duration that they're not lengthening and the demand from the market is there.

And difficulties in the residential market are of 2 types. First, the difficulty in actually producing more and then also the French ELAN law did make the building permit process longer and unfortunately and we've seen a lot of local politicians slowing down in the signing for these construction permits. And even though it's had not had an impact on the supply, these regulations on social housing has also led to minus 30% of the order for this market, which has been disturbed, as you've seen probably in the press that you've seen the government is expecting to undertake a second level of what the, in French we call, APL, which is the housing benefits and this is not necessarily well-oriented but you've seen minus 10% the offer of new housing in 2018 and this year, it should be probably even stronger.

In office, market there, the market is doing well and investors are still very active.

If you look at what Icade's done, it's somewhat different because we delivered a lot in 2018 and we are launching new operations in 2019. And now more specifically for Icade Property Development, Emmanuel Desmaizières is here, you probably don't know him, he joined us as CEO of Icade Promotion, he joined us at the end of June replacing Maurice Sissoko who has taken on other responsibilities so Emmanuel joined us as CEO of Icade Promotion. He is both a specialist in promotion for several dozen years and all his career has been built in the weak group and his task is to roll out the Icade Promotion roadmap, which is a growth roadmap.

Now the slowdown of an activity is related to 2 phenomena, very strong slowdown in construction activity for we delivered 8 buildings last year, which was expected and we'll come back to this later but we've also won several other major operations, which should launch new operations and there has also been the evolution of the market in residential where it's minus 12% in terms of reservations and bookings for the first half and then we -- I expect that we shall, however, be in line with market expectation but what is positive for us is the growth of the backlog up 3.8% and driven also by the Residential segment with backlog of close to 10% and this all goes well for all the figures in 2020 and beyond.

We've also won several major projects, I've mentioned 5 here but I could have mentioned others, in particular, an operation that we took at the beginning of this, is in the 13th district in Paris, des Gobelins, but it's clear that Icade Promotion alone and sometimes in consortium is manifesting real know-how in these competitive tenders launched by local authorities and with a slight gap in time for these operations.

Well, obviously, local politicians in Paris and beyond will only be delivering their permits after the forthcoming municipal elections.

Now for the outlook. I talked about the backlog plus 3.8%, the strong consumption of the backlog with residential backlog at plus 9%. This anticipates for the residual portfolio of minus 6.8% but if you look this with office properties, the total potential of earnings and revenues for the next 4 to 5 years as we see today stands at EUR 6.2 billion, up significantly from the December 31 of last year.

A couple of words now because this is clearly one of our priorities and -- for our strategy. The low carbon footprint and with the agreement taken by the government and changes in regulations have led us to take this key indicator which shows our carbon commitments and we've aligned with what the French government wants, of plus 1.5% pathway for -- set by the French government, which is more ambitious in fact than what is announced at the global level. But it is quite constraining for real estate promotor such as us and you see on the graph here, the trajectory that will need to be respected to be at plus 1.5% in 2050, you see that we've made a commitment to reduce our carbon intensity by minus 45% in 10 years. And this means significant investments and its real changes in the construction processes and obviously implies investments to improve the carbon intensity of our portfolio. But we do believe that we shall be on track in 2050.

So much for our business, and I'll hand over now to Victoire to comment our financial results for the first half year.

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Victoire Aubry, Icade - Head of Finance, Information Systems & Work Environment [3]

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[Interpreted]

Thank you very much, Olivier.

Good morning, everybody. I'd like to present now some more details of our financial results.

Let's start off with the 2 Property Investment entities. The EPRA earnings up 5.8% as you see here at EUR 306.4 million, sorry, EUR 164.9 million as depicted. This is mainly because of the trend in the net income plus 6.1%, EUR 306.4 million there for the net rental income. Combined effect there for the upswing in the rental income on the like-for-like basis, as Olivier said, while growth went up by 3.1% even though on a current scope basis it was stable because of disposals made last year in the scope of commercial property but we'll talk about that in a minute.

So we have a combination of positive effects with the rental income and therefore, the drop in vacancies that has helped us to reflecting pretty well on the margin ratio, 306 basis points up as you see here now.

We see a positive trend in the earnings in the 2 Property Investment entities. So the EPRA cost ratio has gone down 14.6%, was almost 21% at the end of December last year. So that's the fruit of the drop in the vacancy rate and also the result of the drop in our cost, which stems from the effect of the application of the new IFRS 16 standard but not just that, there are also real positive effects because of the drop in our operating cost for the whole company, company-wide.

So if we have a closer look at the details, we see a commercial investment and Healthcare investment. You see flat net rental income. We have nearly EUR 15 million worth of rental income that exited with the disposal made at the end of last year, positive effects in terms of the vacancy rates and the momentum of the rental activity in the half-year, nonetheless, enabled us to stabilize the net rental income.

So earnings here in the period EUR 105 million. For healthcare investment, you see fine momentum. The fruit of acquisitions that were made last year, substantial acquisitions and 3 handovers of property done during the course of the period. Almost 16% growth in the net rental income and you see the dynamic here is pretty strong in the scope of the Healthcare investment division.

Now the third business line here is Property Development, of course. And as Olivier was saying, as we announced in February of last year when we published our annual results, there is a slowdown in activity in the half-year with a drop in the revenues of 25.7%. Less marked in residential around 15% and more marked in commercial.

There were lots of substantial handovers last year of course and that's the reason why, but at the same time, there's -- this time there is a relative stability in the margin ratio over the half-year, 6.1%, as you see here, as opposed to 6.3% a year ago.

So we have 3 effects that have helped us out here and have kept the volumes up. The price effect, the price upswings that partially offset the construction cost increase. Then the second effect clearly is rigorous discipline in our purchasing policy and the third effect as I said earlier for the Property Investment Division is the positive effect of the cost structure that has enabled us to cushion ourselves against the effects of the activity in this business line.

So return on equity, above 16% -- sorry, at 16% at the end of June ROE. So if you look at the NCCF plus 4.5% for the half-year, mainly driven by the rigorous growth in the NCCF in the Healthcare segment.

We have stability driven progression in the commercial investment division and as you see on this Slide, if we cancel out the effects of the disposals made last year, we would have otherwise had an 11% increase in the net current cash flow.

We'll now perhaps look at our portfolio. So now in the office investment, we add EUR 9 billion, EUR 9.14 billion and 4.5% on a reported basis of growth and essentially for 2 reasons, investments as you can see, it's EUR 193.6 million and very concentrated on the development pipeline. And 80% of our investment is really on our potential, particularly the Origine project and also the Fresk project that Olivier mentioned. Apart from that and again on a like-to-like basis, you see a major change in our portfolio of 2.4% that is EUR 212 million. Essentially, they are 2 positive effects of Crystal Park following the signature to sell, which will take place at the end of July, early August and apart from that, as Olivier mentioned to you, the positive effects that we have had in terms of our value creation for development with the completions made in the first half-year. So our portfolio is at EUR 9.3 billion, which is at a 100% basis and which is located at 10% in the region and the rest is in the second ring, outer ring.

And in fact, it's a return of this portfolio, which is 5.7% for this half year, there's 5% as we told you in terms of office and 7.8% for business parks.

Now as far as Healthcare is concerned, this is a more cautious improvement because we don't really have the impact of the promise that was mentioned earlier of EUR 191 million. So it is a growth rate of 1% on a reported basis and it's 1.5% on the whole. Plus, the slightly positive effects of the investment. We also have investments coming up. It's EUR 255 million, essentially the results of our acquisitions in Italy last year accounting for only EUR 110 million.

Apart from that, there are other extension projects, 2 of which will be completed during the course of this financial year.

So when you combine all these different elements that I have just commented on, be it the EPRA NAV, we have an EPRA NAV up that is at 2.7% and for the entire year, it amounts to 4.8%. So as you can see, the positive effects are roughly the same. In our current cash flow, it's EUR 2.4 per share plus the increase of value in our portfolio accounts for 2.6%, essentially concentrated on office.

The negative effects of the first dividend payout and for the first time, we paid the dividend in 2 allotments. And so the second was paid out on the 4th of July and it will be based on our EPRA of the second half year.

So then you also have the impact of the fair value of derivatives and which has an impact on the EPRA NNNAV, and which was at EUR 89.3 per share and so that is 100 bps. So it's the sovereign rates which are down and our spread is down by 50% in 6 months and so we have major effects. But anyway, it's good news for further financing of our activities.

And now finally, to complete my more financial presentation, let me tell you briefly about our debt structure, our liabilities. So the debt structure remains very solid and the 3 major salient points are essentially, early on this year the -- we bought back a EUR 65 million back and this was -- which was way above 1.53% and apart from that, we also have the first return of our bonds issued in 2005 and which came to maturity at EUR 200 million and then finally in Healthcare, EUR 300 million of loans at a very attractive rate of -- and this is the main idea as far as the liabilities are concerned. So you have indicators, which remain extremely solid and the average cost of debt has gone down by 2 bps as 1.53%. And so a fairly lower level.

Now the -- it's 6.8 for the average time, LCR is one of the highest at 9.3 and then our LTV ratio is at 38.8% including duties and 41% not excluding these duties and it doesn't also include the positive effect of the sales or disposal of Crystal Park, which is still in the pipeline. So that's what I wish to mention to you as far as the more financial elements were concerned and let me give the floor back now to Olivier

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Olivier Wigniolle, Icade - CEO [4]

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Thank you, Victoire.

As an addition to what Victoire said with respect to the LTV ratio, the LTV ratio here doesn't include the duties because our 2 major competitors are reporting their LTV ratio in that manner and we got questions. So we give you both ratios and you'll find -- you'll choose the one which you find most relevant.

Now with respect to our outlook and prospect, with respect to our priorities for 2019, they remain unchanged for the year that is except possibly for the Healthcare division where there is a special interest rate, considerations to be taken into consideration but for the Office Property Investment, there is higher portfolio rotation with significant investments in our development pipeline, which will be funded by opportunistic disposals of our core office assets. International expansion of Icade Santé in the Healthcare division with projects in the 3 target countries, as a corollary to what I told you, with respect to the fact that the Healthcare market has been very buoyant. We've observed interest rate reductions in the key target countries and we have set for ourselves the utmost discipline with respect to profitability criteria so if we are looking for transactions in line with these criteria. With respect to Icade Promotion, we basically have been launching large projects won in 2018 and we've been winning more in 2019 and this will fuel the increase in our revenue with the hope of revival of the residential market in the second half of 2020, which was announced a few days ago.

We announced construction works starting on Wacken, which is opposite the European Parliament. With respect to our CSR priority, we are putting forward a very aggressive low carbon strategy with consumption reduction, with KPIs and goals targeting the 1.5-degree pathway by 2025. And we've continued our liability optimization efforts, which is continual work but given the change in spread levels and interest rates from the beginning of this year, we are trained to always continue to optimize our liabilities to take best advantage of these market conditions.

Now let's focus on investment. This investment and how it impacts the portfolio mix. We've signed this sales agreement with a EUR 9 billion of portfolio value in the first half.

What you have here on the left-hand side, on the top part of the slide is basically the last 5-year view at a net position with respect to investments and disposal. In the first half, we were a net disposal actor. We might remain so for the year considering the -- depending on the market conditions if they are favorable and we'll, of course, take up the consequences as far as how it will be impacting the cash flow.

Victoire gave you the change in cash flow excluding and including disposals but disposing of core assets in very favorable market conditions for sellers and reinvesting the money in higher-value development transactions, which are a bit more long-term, will have an impact, as was explained in Investor Day, we'll have an impact on the short term cash flow position but in a medium-term, this is the good way to manage our portfolio, we think. And this given the type of assets we disposed of has had a significant impact on the portfolio -- on the portfolio mix and portfolio structure and this is what you have in the bottom part of Slide 36.

You have the portfolio view in late 2015, left-hand side and the portfolio view in June 2019 on the right-hand side, in value terms, it changed quite significantly as you can see but you can see that the share of offices has increased from 40% up to 60%. Healthcare assets have increased from 19% to 22% and we think we can go up to 25% in this segment. And of course this portfolio mix was to the detriment of business parks and the share of business parks, some of which became office space, which were reclassified and others were disposed of and this was in 2016 and 2018.

So we accelerated this disposal effort in the first half to reinvest in the development pipeline for the Commercial Property Investment and for the Healthcare Property Investment divisions and very likely for 2019, other disposals will see the light of day, we are working on it at least.

Now with respect to the guidance and dividends.

So you have the guidance for the year here which has been confirmed with a stable cash flow excluding disposals completed in 2019. We've indicated that the impact of each of the disposal in particular Crystal Park considering the timing should have an impact of minus 3% on our cash flow and the guidance for the dividend policy for 2019 is a forecast growth of the order of 4.5%, which represents payout ratio of some 90% and as we've indicated, the distribution of some 10% of the capital gains from the disposals.

And as you know that the sixth regiment in the French posse will -- gives us an obligation to distribute within 2 years of the dividend, includes part of the current cash flow and part of the capital gains from the disposals.

So much for our half year results and we set an appointment for the third quarter on October 17 and the Investor Day will be on November 25.

Thank you for your attention, and I shall hand over now for any questions and the answers.

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Questions and Answers

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Olivier Wigniolle, Icade - CEO [1]

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[Interpreted] A question here in front

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Unidentified Analyst, [2]

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[Interpreted]

I have 2 main questions, the first, concerns the evolution of your net current cash flow for the first half, it's 4.5% for the first half and you're giving a guidance stable excluding this -- the stability excluding disposals is there going to be an effect that we should expect? In particular, have you noted an improvement of the EPRA cost ratio? Is this a benchmark that we could use for the whole year or do you have any other indications?

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Olivier Wigniolle, Icade - CEO [3]

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[Interpreted]

Well, yes, the general trend for improvement at costs should continue but then you have effects of disposals and deliveries, which took place last year. And on the 30th of June, apart from the promotion activity, we already have reasonably good visibility of the cash flow results for the year and we consider that there is no reason to change the guidance even though I could understand that you are wondering how we go from plus 4.5% to 0. Well, there is always kind of prudential buffer in the guidance that we give but we want to stick with the guidance that we gave in February 2019.

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Unidentified Analyst, [4]

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[Interpreted]

And my second question. Crystal Park is going to be disposed of in a few days. Now we see that in Healthcare, it's taking time to prepare your projects in particular of these long-term partnerships. But could we expect other operations in 2019? Or is it more for 2020?

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Olivier Wigniolle, Icade - CEO [5]

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[Interpreted]

Well, if there is one thing that I'm willing to say, I mean, if we are -- we can determine for the disposal of the timing when you put on the market. And as we had determined the kind of, contacts, the duration of close of tender. But in terms of acquisitions and well, we're very much dependent of course on the willingness of the people selling. And so to give a specific forecast for the effects of disposals, it is possible. But for acquisitions, I think it would be lack of prudence on my part to be able to say something clearly there but Xavier Cheval's team is working on this and it is indeed one of our priorities for the year and obviously, we do want to deliver on our priorities but then between end of second half 2019 or beginning of first half 2020, it's difficult for us to be any more specific.

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Pierre-Emmanuel Clouard, Kepler Cheuvreux, Research Division - Equity Research Analyst [6]

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[Interpreted]

Pierre-Emmanuel from Cheuvreux. I'd like to talk you about Crystal Park and I'd like to know of the EUR 200 million of concession of value, I take it that there is capital gains there? And my second question is on Italy and Healthcare. You've won -- Primonial's won significant projects there but are you keeping -- standing by your portfolio for these acquisitions. And because Primonial is rather aggressive, does this not put a break on your own capacity for investing? And second question, is it possible to dispose of -- in the Eko tower? And would you not rather go for the full disposal of the Eko tower and improve your cash flow.

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Olivier Wigniolle, Icade - CEO [7]

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[Interpreted]

Well, you're asking 3 actions on current actions and I am very happy to get to say I can't answer any of your questions because these are ongoing business decisions. I mean, for Crystal Park, we will comment on this once the transaction is concluded but being an operation which is under promise of sale, it's not normal to comment on it, concerning the issue in Italy, well indeed it is a very significant portfolio that we've been considering but again, we have set for ourselves criteria of profitability, and if possible criteria for partnerships and to be able to associated this maybe with an operational transaction. I mean that would be the ideal but I can't specific comment the price at, which Primonial is buying. Yes, there are more aggressive players than us but this is also true in France. We try to major on other arguments and to take up your terms, I mean I have certainly no fears regarding our capacity to invest. The roadmap for Icade Healthcare, internationally for the next 3 years, it is still the same, whatever the aggressiveness of some of our competitors. As regards to your third question for (inaudible), we've always wondering those questions about our big assets. I mean our portfolio of EUR 9 billion of course. I mean obviously, the unit size of some of our assets does leave room for some participations and this would be, let's say a smart way of managing the risk of concentration so these are not things that we exclude but it is not something that we are specifically looking for either.

Are there any questions over internet or -- there is a question on the telephone? First question.

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Operator [8]

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Celine, you have -- on the telephone line.

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Celine Huynh, Barclays Bank PLC, Research Division - Research Analyst [9]

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[Interpreted]

Yes, I have a question concerning the like-for-like growth of 3% of the rental income with an occupancy rate that's going down on like-for-like basis and 1% of the leases to be renewed this year, the like-for-like 3% can be explained only by inflation, it seems to me and that's much higher than your peers. Could you comment on that figure, please?

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Olivier Wigniolle, Icade - CEO [10]

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[Interpreted]

Well, I wouldn't dare say that you're making a mistake but obviously, the indexation on inflation is at 1.8%, 1.9%. So we're well below that but the occupancy rate based on the lease value now, the growth of leases and rents on like-for-like is a blend of the rental values and also the rates of buildings that have been emptied and others that have been taken over, up to 90,000 square meters. Now it's not that you're making a mistake but it's not always simple to break down the evolution of the 3.1%, which is distinguished between offices and commercial sectors and the downward turn of the ratio is essentially related to the sale of offices. It's not therefore that you're making a mistake but simply the mathematical process to reach the 3.1%, includes elements, which are not all disclosed line for line in our publications. But in Healthcare, we're well beyond the indexation, be at the benchmark indexes or also depending on the type of lease. Is there another question?

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Operator [11]

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Please ask your question.

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Unidentified Analyst, [12]

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[Interpreted]

Just a question concerning a development time and considering the situation, which is beginning to appear of a more sensitive supply with a slowdown of the market. Is it possible that you might have the possibility of delaying some of your operations in the pipeline to be in line with the market? And second question concerns the Healthcare properties and here the question is, this situation that I've mentioned for Paris offices in the immediate Paris periphery, could -- is this slightly also in healthcare?

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Olivier Wigniolle, Icade - CEO [13]

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[Interpreted]

Well, I'm sorry, I didn't hear your name, sir? Anyway, nope, too bad. But first question is concerning the changes in the rental market, in the Greater Paris region. Let me give you the transaction of roughly 2 million square meters in this year, which is down from the figures in 2017, which is due to obviously the slowdown of the economic growth but the pipeline is 2.2 million square meters. So it's a transitional year and we can see that the vacancy ratio is stable at 2.3%. Now we're constantly adapting this but our policy is that as we see it, there is no risk of overproduction in the Greater Paris region because that's why we give, in fact, these specific data, the immediate supply only represents 15% and concerning the big transactions, the big deals, this is essentially exclusively on new or semi -- quasi-new buildings. And one reason that we've reduced the volume in transactions in the first half is because of the downturn of offices, which is at minus 40%. And one of the reasons why we have this volume of big deals is down is the rarity of the supply. And our perception is that the market is still favorable but to answer your specific question, do we have the capacity to adapt our pipeline? Yes, of course. Now that's what we're doing all the time. I mean nearly all the pipeline operations bear on our real estate reserves and the real estate is what is already in our own ownership but then, we renew these real estate leases before we start an occupancy lease and we feel that the timing here for the launch of these operations is therefore adapted to the market conditions. And it's also adapted to our capacity to really establish these operations because the operation's relatively limited, we've launched les Fresk but it was an existing building but for the pipeline for development, which is the vast majority of what has come from the Icade real estate reserves there we adjust -- I mean, if we look at the track record of our asset management teams in preleasing these operations of course is good but we will not actually launch if we have not the capacity to pre-let. Now concerning Healthcare, I mean, I don't remember having said it but -- that we were disposing of the Healthcare portfolio, now what we have said is that we do have partners, minority partners who have a total 44% of the shareholding of Icade Santé. And this majority of the major life insurers and probably by Frédéric Thomas and most of these came into Icade Santé in 2012 with a 10 year business plan and therefore looking at things in terms of 2020, the term employed at the time of the term is important is the liquidity of this investment and the liquidity of this investment can be undertaken in different ways and considerably adapted but certainly not by completely divesting and disposing of this portfolio.

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Unidentified Analyst, [14]

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[Interpreted]

And in that case, one last question, if I may. It's just -- it's a market information concerning the evolution of rental value in the second ring around Paris. Is it a system, which allows you to see that in the first and second crown around Paris, that the trend there is stronger than it has been in recent years? Could we maybe expect a stronger growth in the second half?

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Olivier Wigniolle, Icade - CEO [15]

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[Interpreted]

Well, there are 2 phenomena, which are some of them complementary and others contradictory, the phenomena is Paris within the Paris limits, city limits is just full. And so it's true that the rental value posted within city Paris has seen strong rises but with very limited number of transactions because there isn't supply. Second phenomena is that there is a general trend to centralize for office buildings and certain office locations in the second crown around Paris does make it difficult to sell or to let in offices. And this is what led us in 2007 to sell some of our office properties, which were very interesting properties but nevertheless, we're depending -- much more dependent for storage and laboratories but the market is going to change. And locations more than 20, 25 kilometers from Paris will slowdown but what we can say is that considering the fact that Paris city is full and the second crown locations are difficult to market, we feel that the second market that will benefit most despite less buoyant economic environment. Clearly, we'll nevertheless see this is in multi element, and when you look at all these elements Paris is full, and the second crown which is more complicate to market and a stronger focus of businesses in on their operating costs, this market segment that should benefit from these. Then of course, what are these segments but is clearly the first crown, the immediate periphery of Paris both North of Paris and the East and the West and we feel that we'll have more transactions there because that's where all the big new office premises are being built and there also be growth in the rental value with respect to the volume and the most interesting market growth even though the very low victory within Paris means that you may find a lawyer and a strategic consultant willing to pay 10,000 nears of square meters for an office but this does not reflect a significant volume movements in the market.

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Operator [16]

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Your next question comes from the line of Peter Papadakos from Green Street Advisors.

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Peter Papadakos, Green Street Advisors, LLC, Research Division - MD & Lead Research Analyst [17]

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[Interpreted]

Well, Olivier, just any qualitative comments would be helpful on the renewed leases, the 67,000 square meters in the office segment. As well as in the Healthcare the 8 renewals that you agreed. Can you give any comments with regards to new rent on a headline or a net effective even better basis versus the previous passing rents? Any comment on the releasing spread would be helpful?

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Olivier Wigniolle, Icade - CEO [18]

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[Interpreted]

Xavier and Emmanuelle to answer your 2 questions. Xavier, on the renewal of the leases for the Healthcare segment. Microphone is there. (foreign language)

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Xavier Cheval, Icade - CEO of Icade Santé & In charge of the Healthcare Property Division [19]

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On the renewal of the 8 lease agreements for the Healthcare proprietary division. The renewal were made at the same level upfront than the previous one. It was already existing. So no unfavorable or favorable effect of the tenure except from the longer maturity of the lease agreements.

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Olivier Wigniolle, Icade - CEO [20]

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(foreign language)

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Emmanuelle Baboulin, Icade - Head of the Property Investment Division [21]

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[Interpreted]

So concerning the renewal of the leases, we've renewed 60 in first half and still above [VOLM] the average rental value there. And what should be noted is that we are below the market rents.

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Olivier Wigniolle, Icade - CEO [22]

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[Interpreted]

May be one last question on the phone or in writing, Thierry? And then if there are other questions. We will answer directly, in writing later. Do we have one last question over the phone?

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Operator [23]

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One more question, and this is [Lynne] Jordan from Goldman Sachs.

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Unidentified Analyst, [24]

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[Interpreted]

I just wanted to come back to the like-for-like growth and if you could comment maybe on the more significant transactions and which are the best ones in the office sector? And another question more specific for the Aubervilliers region in the northeast of Paris, could you give us more information about your discussion with potential tenants and the discussions currently underway? Could you give us more indications there?

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Olivier Wigniolle, Icade - CEO [25]

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[Interpreted]

Well, I'll answer the second of the question. I'll let Emmanuelle or Antoine to answer the concerning the differentiation of the like-for-like between business parks and offices. The market in the north of Paris because we have several parks whether it's the Pont de Flandre or Millénaire and Porte de Paris park, which are across several municipalities including the northern district of Paris city as well, there are some slight differences depending on the submarkets but the Pont de Flandre park, which is just on the other side of the Périphérique road, is 100% full. The Millénaire park, which is half in Paris the 19th district and half in Aubervilliers is also 100% full, including the buildings and the properties that we divested to third party investors. And for the development in Porte de Paris, we had launched the Pulse building in the discussions that we have with the Plaine Commune conurbation and this was the counterpart, I don't know, you may remember of the agreement that we signed with them at the end of 2018 and they gave us 350,000 square meters of additional construction right. And this is a market for big transactions and so almost turnkey operations that we are launching when we premarket for Pulse, this had given rise to different discussion but we were unable to market this. It was -- I put a lot of hope into this, admitted into this deal and before delivery but today, we have several contacts and now since it's been delivered at the end of January, we have -- building for more -- several tenants, not just a single tenant and the rent in the area depending on the buildings and depending on the levels and various other parameters, it's between EUR 300, EUR 330 per square meter. And to then the northern part of the area at around EUR 350 for the best buildings in the Pont de Flandre park with supporting measures that are around some 20%. Now concerning the difference on a like-for-like growth between business parks and offices on to Antoine de Chabannes.

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Antoine de Chabannes, Icade - Head of Portfolio Management, Valuation & the Residential Division [26]

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[Interpreted]

The like-for-like of business parks is plus 3.9% and there was a significant impact for business parks is in Rungis to the South of Paris where the occupancy rate has significantly increased in particular with the marketing of the Québec building and now we have some 85% occupancy rate and we've also noted a rate of net rental value, which was the order of EUR 70 per square meter but now we're between EUR 90 and EUR 110 with an occupancy rate in that sector of 100%.

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Olivier Wigniolle, Icade - CEO [27]

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Thank you, Antoine. Thank you to all for your presence and we will set next appointment on the November 25 for the Investor Day and please don't hesitate to ask any further questions to Anne, and we will be pleased to answer. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]