Icade SA

PAR:ICAD

Earnings Call Transcript 2020-Q3

[Olivier Wigniolle, MD & CEO]

Good morning, everyone. Olivier Wigniolle, CEO of Icade speaking. So thanks for joining this call, and I will present our Q3 results with Victoire Aubry, our CFO; and Anne-Sophie Lanaute, our Investor Relations, and the presentation will be followed by a Q&A session.So if you go to Slide 4 of our presentation, I would like to highlight some key takeaways or key points of our figure at the end of September. Four different elements I would like to highlight.So the first one is for the investment portfolio. You could notice that our gross rental income amounts at the end of September to EUR 506 million, which is an increase of 6.9% compared to the end of last year -- to the end of last September 2019. And the like-for-like growth of the gross rental income stands at 1.9%, which is under the current circumstance is quite satisfying in our view.Second element that I would like to highlight is the level of rent collection, and we are now back to most of the level of pre-COVID situation, which with a 97% of collection for Q2 and 92% for offices and 96% for the health care portfolio for Q3. These figures are including the different agreement that we have signed with our tenant. And as you know, we have helped, we have supported some of our tenants with monthly or deferred payment. But when you see the figure for rent collection, we really do think that it was the right thing to do again, to help our tenants to cross the crisis.Third element that I would like to highlight is that we have an increase of our gross rental income, but it's for both portfolio. Healthcare, for sure, but also for office and business park that have performed quite well during the 9 first months of the year. And for offices, it's a growth of revenue of 4.5% and a like-for-like growth of 2.1%. So it's not only health care, which is supporting the growth, but it's healthcare and also the office portfolio.And fourth element that we'd like to highlight is for Icade Promotion, our development subsidiary. Sales and revenues amount to EUR 467 million, which is a decline of minus 15.6%. And as mentioned in July, when we presented our half-year results, the decrease of the turnover of Icade Promotion is mainly due to the IFRS rule percentage of completion needed for the development. And with the shutdown, all our construction sites were close and stop during more than 2 months and -- 2.5 months. And if you restate the figure of our revenue for Icade Promotion of the COVID impact, in fact, the revenue should have been up by plus 21% compared to last year. And I will also to mention that compared to the figure given in July, now our view is that the recurring cash flow for Icade Promotion, our development subsidiary, will be positive in 2020, which is a good news for us.So regarding our revenue with a total amount of EUR 978 million, we do consider that, again, regard -- taking into account the current circumstances and the COVID crises, they are quite well oriented.On the liability side, 2 elements to mention, but already released. The first one that our rating, BBB+, has been confirmed by S&P, both for Icade and Icade Santé. And the rating was confirmed after their annual review. So stronger quality of credit for Icade.And also to remind you, that Icade Santé has issued at the beginning of September a Social Bond, and it was really a great success, EUR 600 million, more than expected at the beginning. 10 years on a coupon at 1.375%, which is, I think, very attractive in terms of cost of debt, of cost of financing of our activities. And I think that this kind of coupon reflects quite well the strong quality of the credit of Icade.So now a brief update and Victoire will come back later to that on the impact of the COVID crisis on our result. Just to remind you that regarding the net current cash flow, our estimation in July was around EUR 50 million. At the end of September, we are now a much clearer view on the impact of the crisis, and our best estimate as of today is much lower than the figure given in July. And we are only, if I may say so, at around EUR 30 million. So EUR 20 million less compared to our estimate in July. So again, Victoire will elaborate further on the reason why the amount is lower.On top, we are not providing at the end of September a full P&L. But the other impact on the net result of the company stand at the same level compared to July, around EUR 50 million.So we have now, at the end of September, again, a much clearer view of the impact of the crisis and what will be the end of the year for Icade. And I know that some of you were a bit surprised that in July, we have maintained our guidance suspended. Clearly, reason for that was that the very low visibility at that time. And also, I do recognize that our DNA is probably to be cautious not to say or conservative on our forecast. But we have now a clear idea of what will be our recurring cash flow per share for this year.So our new guidance for this year is EUR 4.80 per share compared to EUR 5.26 in 2019. So it's a decline of minus 8.75%. You will have your own view on that. But given the current circumstances, we do think that it's a quite positive element. Having said also that most of the impact is coming from Icade Promotion. And as Victoire will comment, most of the impact of the crisis in terms of cash flow will be postponed and recovered in 2021.So a new guidance, again, at EUR 4.80 per share. And if you restate that figure, that number, by neutralizing the impact of the COVID crises, the EUR 30 million I was mentioning earlier, we are fully in line with the guidance that we had given in February before the crises.Final element that I would like to highlight in our press release. It's the dividend for 2020. We have asked to the Board to confirm the level of the dividend for this year. And the Board, subject to the AGM approval, the Board has confirmed a dividend at EUR 4 per share for this year, which means that dividend will remain stable compared to this year. So even if we have a small decline in the recurring cash flow, we have the capacity to pay a dividend of EUR 4 per share. And the Board will propose that to the AGM, which means that we will have a little bit more conservative payout ratio this year compared to previous year. But we do think that is the right thing to do under the current circumstances.So this here, an overall introduction of the key facts of our press release. And now I will ask Victoire to go more into the details.

[Victoire Aubry, Head of Finance, IT & Work Environment]

Thank you, Olivier. Good morning, everybody. First, I will comment more precisely the revenues end of September that you can see on Page 5.First, as Olivier told you, a quite solid growth coming from Property Investment divisions, both Healthcare and Offices, with EUR 506 million of gross rental income, nearly plus 7% on a current basis and plus 1.9% on a like-for-like basis.Healthcare momentum continues. As you can see, with the total of revenues representing nearly EUR 225 million end of September, merely plus 15% of growth compared to Q3 2019. On a current basis, it's around 2-point -- plus 2% on a like-for-like basis. On the second hand, the Office division remained quite positive with a plus 4.5% growth of revenues during the period and plus 2% on a like-for-like basis. I will elaborate a little bit more in a few minutes. It represents EUR 268 million gross rental income at the end of September.For third division, Property Development revenues, we had a total of EUR 467.5 million, represented a decrease of 15.6%, quite less than the end of June, minus 23%, illustrating the progressive rebound of this division after the shutdown we had in the Q2.So back to the key highlights of the Office Property Investment on Page 6, if you want, with 4 main topics to share with you. The first one, we confirm the resilience and diversified tenant portfolio profile, illustrated by the strong level of rent collection ahead of Q3, above 92% so far, quite in line with the historical level at this stage. We confirm also a low level of credit default rate at around 1.5% of the gross rental income. We continue, of course, actively to support all tenants by managing proactively their demand. 20 leases were renewed, 11 of them COVID-related negotiation, which allow us to increase term leases by 2.6 years, specifically for those negotiation, of course, with stable headline rents. In counterpart, we offer limited free rent period in 2020.So far, we can say that 60% of the leases having break in 2021 are secured. It's a quite positive news. At least interesting to notice that the 40,000 square meters signed in Q2 and Q3 have been done without any substantial drop in rents compared to the previous level. You have some concrete example in the press release. So since the beginning of the year, we have already renewed or signed 111 leases, one of which for an amount of 132,000 square meters, representing EUR 30 million headline rental income with an average maturity of 8.9 years.Now regarding the investment done in the pipeline, EUR 130 million already invested in the 1st of January, and only EUR 133 million out of EUR 860 million to be invested for the project of the pipeline, which have to be delivered by the end of 2021. And just remember, 64% are already pre-let. So a quite dynamic third quarter for the Office division, renewed on new leases done with resilient condition, plus 4.5% on the gross rental income, mainly stable occupancy rate at 92.1%, and WAULTs at 4.3 stable. Regarding those results, the update of the COVID impact of the 2020 EPRA earnings of the Office division should be limited at around EUR 6 million.Going forward, on Page 7, focus on Healthcare highlights, we confirm the business line in line with the pre-crisis trend. Limited financial impact on health care providers, therefore, limited impact for Icade net current cash flow, around EUR 2 million -- minus EUR 2 million. Indeed, exceptional measures granted by the government at least until the end of the year. So far, rent collection remains at historical level, 100% for Q2 and 96% for Q3, so far. The investment market momentum remained strong, and we continue to be active. We have already invested EUR 99 million during the period. In addition, we signed preliminary agreements for EUR 120 million, and the pipeline at the end of September represents EUR 300 million to be invested until 2024. Until the beginning of 2020, it represent EUR 26 million already invest. So quite strong Q3 figures for Healthcare, plus 15% for the gross rental income. I remind you 100% occupancy rate. Average maturity of the leases, 7.3.Then a few comments regarding our Property Development division on Page 8. We have a back-to-normal situation and sustained demand for residential. 100% of the construction projects are fully resumed. Demand for housing remains structurally strong. The market should benefit from the extension of tax incentive at Pinel or interest-free loans. And on top of that, the institutional investors are back in the residential segment. So all forward KPI are well oriented, backlog at EUR 1.3 billion plus 1%. And focus on residential segment, it's plus 5%.To conclude this slide, the economic revenues at EUR 502 million, down by 15%, a smaller drop compare end of June, one more time, minus 23%, mainly due to the POC method, as Olivier explained it to you at the beginning of the presentation. In this context, we can revise downward our forecast for the impact of the COVID on the net current cash flow of this division at 22 -- minus EUR 22 million versus minus 23 -- 21 -- EUR 31 million, sorry, to EUR 36 million in July. And it's very important to underline the fact that 95% of this shortfall will be recovered in 2021 and beyond. So we are comfortable to say the net current cash flow of the division will be slightly positive on a full year basis, I mean, at the end of 2020.To sum up, we have -- we gave you on Page 9 a global overview of the COVID-19 impact on new net current cash flow on a full year basis. Office Investment division impact is expected around minus EUR 6 million to be compared with the EUR 12 million at the end of July. It represents less than 3% of the full EPRA earnings of the division.Healthcare Investment division, the impact is limited at EUR 2 million. On the Development division, we revised the COVID impact downwards at EUR 22 million for 2020, mainly due to a lower impact of the construction [ site ] shutdown, new estimate at 2.5 months compared to cautious 3.5 in July. And the fact that the market so far doesn't show any sign of price drop compared in July cautious forecast with a drop -- with a price drop of EUR 6 million. And also, 95% of the net current cash flow shortfall is expected to be recovered in '21 and beyond. So subject to the health crises not worsening, the total impact of the 2020 net current cash flow has now been estimated at around EUR 30 million in a lower amount compared to the late July estimate around EUR 50 million.

[Olivier Wigniolle, MD & CEO]

Thank you, Victoire. So going to Page 10. So I will comment again on guidance and dividend, just to confirm, respectively, at EUR 4.80 per share for the recurring cash flow and EUR 4 per share for the dividend. So again, it's a decrease of minus 8% for the recurring cash flow per share. But our view is that in the current crisis environment, it's quite [ tantalizing ]. It's a quite satisfying figure. Also like to highlight that if you restate again the figure of the COVID impact, we are fully in line with the guidance we had given in February. I would like at the conclusion make maybe 3 comments. The first one is a general comment. For sure, the crisis is there and we have been impacted, as probably everyone in the real estate sector. But our view is that the impact that we are on the day-to-day basis seeing on the ground is really much, much more limited than what we can read in some surveys or reports. Just to give you an example, if you look at the percentage of tenants that are back in the -- in our office building in terms of number of companies, it's probably close to 90% that are back in their premises. And in terms of occupancy, we are probably a little bit above 60%. So it's not exactly the situation that we had before the crisis. But even with a momentum where work from home is pushed by the French government, the occupancy of our office building is at a quite high level, which is, I think, a quite different situation compared to London or the U.S. So our view -- said again, we have an impact for sure, but less limited compared to the view of some report or survey.Second comment is that I can confirm that, well, the teams of Icade, we are really, I think, committed and focused to cope with the COVID crisis. And I think it's a real plus on top of the diversified business model, the quality of the rent roll, the quality of our 2 portfolio. But all the agreements that we were able to sign with our tenant, all the blocks there that we were able to close with institutional investors for residential, all those elements allow Icade, I think, to limit the impact of the crisis. So the crisis is not ended, but we got, so far, for the pricing -- let's say, I think, at the best we would do. And third and final comment, for sure, a key question for us, for the Board, for our investors. The key question, okay, what are the -- what will be the midterm or long-term impact of the crisis on our business model? Will we be able to deliver in the future the same kind of growth, the same kind of return compared to the last 4 years? So those questions are fully relevant for sure. And that's why we have confirmed the organization of our Investor Day at the end of November, the 23rd to be precise. And we will answer to that question during the Investor Day. And we'll be more than welcome you at that day physically or by video, depending on where you're allocated.So thank you for your attention. And now Victoire, Anne-Sophie and myself, we are ready to answer your questions.

[Operator]

[Operator Instructions] Our first question is coming from Florent Laroche-Joubert from ODDO BHF.

[Florent Laroche-Joubert]

So I may have 3 questions, if I may. So my first question is on offices. So is it possible to have a view on incentive? And also your view on the investment market in the [ OS ] in which you operate? So how do you think the investment market today can support the valuation of your assets at the end of the year? So that will be my first question.So on Healthcare, so what can we expect in the short-term in terms of acceleration of the development of your portfolio? And my third question will be on the sustainability of the dividend. So how can you tell us that the dividend can be sustainable for next year, that means 2021 and after?

[Olivier Wigniolle, MD & CEO]

Thank you for your question, Florent. Our view on incentive, I will split my answer in 2. We have, as it is said, and we have discussed. We have negotiated some agreements with some of our tenants. They were asking for support in 2020 regarding the environment. So our typical, our usual negotiation was, let's say, to accept to grant 1 month of free rent in 2020 against 1 year of extension of the lease rents. So that's the typical discussion that we have. We have given, I think, the average figure for the number of leases that we have renegotiated. And we did focus our negotiation on tenants that, that had a break option in 2021-'22 in order to enhance the average lease break in our portfolio. That was a typical discussion.For new lettings, maybe you will be surprised. But if you look at reports by the real estate broker, for the time being, the new letting that we were been able to sign this year, it's really close to values and incentive that were implemented before the crisis. So a good question if that will be the situation in 2021-'22. But as of today, we are signing probably less new lettings that in -- compared to last year due to the lockdown and so on. But for the time being, we -- on our portfolio, we didn't see any major evolution in terms of rental values or level of incentive.And again, probably the discussion with our tenants in our building when they were asking for support for 2020, probably negotiation were, let's say, like this, easier or smoother because there were, let's say, our tenant, they wanted to sign, let's say, quite quickly an agreement. So I think the deal, 1 month of free rent period against 1 month of extension of the break option, it's really a fair deal. And we are trying to sign some other on most -- more or less the same level.Investment market, I think, my view is that for core assets, and we have especially some time with you, Florent, but we have always a discussion of what is a core asset. What is a core asset in our view? It's an asset which is brand-new or fully refurbished, fully let. And with, let's say, a midterm cash flow of between 5- to an 8-year. For those asset, and there are several building in the market, I think the market will continue to perform quite well. It means that cap rate will be probably, let's see what will be the transaction that will occur before year-end. But I think that external experts will have comparable transaction to have a fair valuation of core assets.Where you could, let's say, challenge, you know where it is, everything which is value-add or opportunistic because there is, for the time being, no appetite for risk in the market. So I don't know if it's a question of value. But if you want to sell, say a vacant building, which is not the kind of disposal that we want to make, and our job is to make the job if I -- but if you want to sell a vacant building to be refurbished, which is sometimes the case of institutional investors or insurance companies because they don't want to do that kind of job. For this kind of asset, I think the market is not there. No appetite for risk.So probably, and it has been the same in July, external experts will have probably a clause saying that they are doing their best to give a fair value, a value-add or opportunistic asset, but that the level of comparable transaction is limited, and you have to take that into account. But again, core asset liquidity, you have seen the transaction announced by Unibail recently on their building in Issy-les-Moulineaux, quite close to our headquarter. There are some other in the pipeline in the market. And I think that cap rate will be, I'd say, quite interesting.Second question, the pipeline for Icade Santé. I don't want to say that I will answer to your question at the end of November in our Investor Day. But it is, I think, reasonable to think and to say that we will try to push probably more the -- our investment plan in Healthcare. Just to remind you that for our plan, our overall investment plan for period 2019-2022, it's a volume of EUR 2.5 billion. At the end of June, we have already invested or committed half of that to our -- a little bit in advance. So we are considering or seeing is it possible to do more or to do quicker.The team -- the acquisition team is on the ground and not only in France but also in Italy, Germany and also in Spain now. Limit to that is that your question on valuation was for Office, not for Healthcare, but there are a lot of liquidity around for Healthcare. So we do anticipate probably an increase in terms of valuation for Healthcare assets due to the liquidity around and the transaction that will occur before the end of the year.And okay, Healthcare is attractive in terms of cash flow, very long-term leases and so on and so on. But we have also a limit in terms of cap rate that we can or could accept. But it's always the same play for us, we are trying to sell something else that our capacity to put money on the table, which is a long-term relationship, capacity to provide business development opportunities for the operating companies and so on. Because market would be competitive because it's with -- probably with logistics. Healthcare is one of the 2 asset class, which is attracting a lot of money in the current market environment. But it's fair to say that we are considering to how we could do, let's say, more or quicker regarding our investment plan.And the deal that we have signed in July with ORPEA is quite promising for us. It's a -- just to remind you, EUR 145 million. So it's an average size. 9 different properties, one in France and the others in Germany. And we have some kind of an agreement for ORPEA to, let's say, like this, to do more. So it's another leading operating company, which is now a partner for Icade Santé.Your question on dividend, so our view is that it is sustainable, for sure, it is sustainable for 2020. So it's a payout ratio of 93 -- 83%. So it's less compared to the previous year. But I think it's reasonable to be a little bit more conservative on that. B, and it's not retained in the press release, but our view is maybe we will consider to have, maybe for part of the dividend, a scrip dividend. It could be, I think, an interesting option, both for the company and for our -- and our shareholders.So when you combine that a little bit more conservative payout ratio and maybe an option for scrip dividend, I really do think that dividend is sustainable over the next few years.

[Operator]

Next question is coming from Alvaro Soriano of Bank of America.

[Alvaro Soriano-De-Miguel]

Few questions from my side. The first one on the LTV and given the levels that Icade is running, has the company made any analysis of how much should be divested in order to be safe on the loan-to-value side? And now following up your recent answer on the scrip dividend, do you think a scrip dividend at current stock price levels is the right way of shoring up your balance sheet? That would be the first question.Then the second one is in some of your previous calls, Icade anticipated a potential office rental decline of between 5% and 10%. We can feel now kind of a big message for offices, at least for the midterm. Do you still see a drop of that magnitude in office rents? And if yes, it is a matter of vacancy or other factors might impact that potential decline of between 5% and 10%?And the last question is about Icade Santé entering into Spain and Italy. Less mature markets is easy? And then can operators like ORPEA open doors on those markets? That would be all for me.

[Victoire Aubry, Head of Finance, IT & Work Environment]

Okay. I will answer your first question regarding the LTE (sic) [ LTV ] ratio. Just to tell you that the level of our LTV ratio, including taxes at the end of June, was at 39.3%. So a quite comfortable level in line with our financial policy, of course. We also are looking precisely the ratio debt net on EBITDA, which is around 10 for Icade, one of the more comfortable level in our market. So of course, the covenant for Icade are quite far away. And to be more precise, we are managing our first level of covenants at 52%, representing only 70% of the gross debt. And so we are managing it to upgrade this level at around 60%, 65% as the other line.And the third point I would like to answer is that, of course, we will take into account the potential trend of the valuation of the portfolio. Because we could have not that same trend and dynamic than the previous year, of course. But doing that, we are paying a greater attention of the investing we are doing -- I mean by that, the investment, sorry, we are doing. I mean by that, the volume on the investment in the pipeline, and I'm sure you have noticed that ahead of Q3, the strong decrease of the volume of investment.And so we are managing also, in the meantime, this volume of investment. The volume, of course, of this follow-up plan. And in the meantime, we are taking into account the evolution of the portfolio. So having seen that, we are quite so far today, confident to say that we will manage our LTV ratio.And one more time, we are not only looking at the LTV ratio. We are also following cautiously the ratio, net debt on EBITDA, which is quite also important and not linked to directly valuation of the portfolio. So that's the first thing, i.e., the first part of your question.One comment about the scrip of dividend. In my point of view, for the LTV ratio point of view, it's, of course, a good positive thing. It's a positive thing to use scrip dividend.

[Olivier Wigniolle, MD & CEO]

And hopefully, to be more precise on your question, Alvaro, is that hopefully, and that's why the decision is not met. But just considering that is that we have also to take into account what will be the share price in March. Hopefully, it will be the same compared to today. So let's see. But if you look at all the other different listed real estate company, they will, for sure, probably include that in their dividend policy this year due to market circumstances.Rental decline, I think, it's very difficult again to make forecast. And our view compared to a comment that we made in July is that although we are not at the end of the crisis, but what we are seeing, especially in June, July, September, it being [ automatic ]. For the time being, the situation is better than, it is fair to say that, that we expected at the end of the lockdown.How will the French economic situation will evolve at the beginning of 2021? What will be the impact of the relaunching plan implemented by the French government? It's a bit -- after that, if you look at market survey released by real estate brokers, they are depending also on the submarket. But they are probably between minus 0 to minus 10%, depending. After that, you have each submarket, you have your different position. Our view is that, as I were saying, we have done the best we can to secure the rent for tenant that has -- that have a break option in 2021-2022. And for those tenants, I think, no decline in rental value.And after that, we have to have what we do have to market, so a project launch on a speculative basis, it's limited. It's not 0, but just one project in Issy-les-Moulineaux. But probably the best project of this submarket, a little bit more than 20,000 square meters, the project that we have in Lyon, the project or the remaining part of the Origine project. Maybe we will have, at the end of the day, at least sign at a little bit lower rent compared to I expected 1 year ago, but we -- and especially for the -- for this kind of project and the quality of the project. Unfortunately, during our Investor Day, it's not possible to organize a visit of the Fresk project that we have in Issy-les-Moulineaux for sanitary reasons. But it's clearly a [ tracking ] asset for the submarket. Origine, it's the same. And if you have any opportunity to come to Lyon, I will be more than happy to organize a visit of Park View, which is the asset of the Lyon market. So we are, let's say, like this confident in a difficult environment that those projects should perform quite well.After that final question on the LTV, and we think that disposal should be -- the amount of disposal should be necessary to keep the control of the LTV. We are seeing at disposal the other way around, if I may. There, we are thinking in them of asset management. Is it the right timing to sell such a building? Are we able to get interesting offer? But we don't have any necessity to dispose asset to keep our rating or whatever. It's more a question of opportunity. If the market, as I was saying to Florent, is there for core assets, maybe it makes sense to dispose some of them. For sure, it doesn't make any sense for a company like Icade to dispose value-add or opportunistic opportunity in the current market. So -- and believe me, we have unsolicited offer on our -- on the core part of our portfolio on some of our assets of our portfolio. So let's see. One, I think, one fair question on that or fair answer is about the disposal of the second part of the two record. For sure, Korian investor have been impacted by the crisis. So they have an option until the end of the year that they could -- they can exercise to acquire the remaining part. Our view today is that they won't. And we are discussing with them because they don't want to probably to stay a minority partner, let's say, forever. So we are discussing with them to see what will be the future, but they won't exercise the option.So we are -- and again, as I told you, our rating was confirmed by Standard & Poor's after their annual review. So we are...

[Victoire Aubry, Head of Finance, IT & Work Environment]

With a stable outlook.

[Olivier Wigniolle, MD & CEO]

Stable outlook. They have maybe a little bit more detail of what's going on for the reason that you could understand. And so it's maybe to be, again, on disposal, we will dispose assets if we have interesting offer. Otherwise, we do think that we do not need to do so. And as Victoire was saying, it is also probably fair to say that we won't launch any new development on a speculative basis in the current market.So just to remind you that our, let's say, business [ finalizes ] is to recycle the capital to sell core assets in order to reinvest in our development pipeline. More detail at the end of November. But for sure, we will need less capital to invest in our pipeline. So therefore, we need less disposal.

[Operator]

We currently have no questions coming through. [Operator Instructions] Next question is coming from Madame Marie Dormeuil from Green Street.

[Marie Amelie Charlotte Dormeuil, Research Analyst]

Maybe just a follow-up, Olivier, on what you said, and you gave a little bit of a hint of this in your press release. You say that potentially, you could convert the number of development projects into housing. So can you maybe give us a little bit more details on this?

[Olivier Wigniolle, MD & CEO]

Yes. And I was -- this comment refers to especially the 2 large sites that we have, one in the south of Paris in Orly/Rungis and the other one in the north of Paris, in Paris, Aubervilliers, Saint-Denis. Situation are different. But political changes after the local election in Saint-Denis in Aubervilliers and probably much more appetite of the mayors of 2 city to have residential schemes -- private residential scheme, so we have already started to consider with them to transform, as you know, the -- let's say, the land bank in the north of Paris quite significant at more than 450,000 potential square meters to convert some of this project into residential project. I think they will support that. So the question for us after that will be -- and again, the question -- answer to your question, probably more detail at the end of November, but we will consider to do so first. And B, after that, the question for us will be, do we want to sell those residential scheme unit by unit to private buyers? For sure, we won't sell that to institutional investor. Or do we want to keep some residential on our balance sheet? It's a bit too soon to say. But clearly, and I think the good thing for us is that we will have this option or opportunity.And in the south of Paris, in Orly, it has already started. We have launched 2 schemes on what used be a business park to residential scheme, developed by our subsidiary, and we will launch another one. In a world where I think it's fair to say that office demand will be probably more limited compared to 2019-'18, I think one of the advantage that we have in our portfolio is the fact that we will have this option, not just to say, okay, we will do less offices because the market is not there. But we will have the option to transform part of this pipeline into residential schemes. That's what the reason behind the comment.

[Operator]

We have no further questions in the queue. [Operator Instructions] There are no further questions. So I will hand you back to your speakers.

[Olivier Wigniolle, MD & CEO]

So yes, if there's no further question, thank you very much all of you for joining this call. And if you have any additional questions, do not hesitate to send that to Anne-Sophie, Victoire or myself. We will be more than happy to answer as quickly as possible. Thank you very much. Goodbye.

[Victoire Aubry, Head of Finance, IT & Work Environment]

Goodbye. Thank you very much.

[Operator]

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