Hello and welcome to the Cofinimmo full year 2022 results. My name is Caroline, and I'll be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand over the call to your host, Jean-Pierre Hanin, CEO, to begin today's conference. Thank you.
Thank you. Good morning, ladies and gentlemen, and thank you for being with us for the presentation of Cofinimmo's 2022 full year financial report. My fellow colleagues are with me in this conference. Jean Kotarakos, CFO, Françoise Roels, Chief Corporate Affairs and Secretary General. Yeliz Bicici, COO, Offices and Real Estate Development. Sébastien Berden, COO, Healthcare. Hanna De Groote, Head of ESG. Maxime Goffinet , Head of Treasury. Jonathan Hubert, Head of Control. Lynn Nachtergaele, Head of Investor Relations, and Philippe Etienne, Head of External Communication. I'm on slide three, and we try to go quickly through a presentation to make sure that you guys have enough time for the Q&A. Let's start with the highlight of 2022. Despite a unprecedented macroeconomic context, Cofinimmo has achieved a solid operational performance. The gross rental revenue are up by 8.8%.
The occupancy rate is historically high at 98.7%, and the residual lease lengths reach 13 years. The net results from core activities, group shares of EUR 222 million, shows a 5% increase compared to 2021. We also confirm our gross dividend for the 2022 financial year at EUR 6.20 per share, subject to shareholders' approval at the next Annual General Meeting in May. Last year, we continue our growth in healthcare real estate in Europe with EUR 547 million of investment. We also closed the investment for EUR 144 million, mainly in offices and distribution networks. We can say that we are witnessing the transformation of our portfolio, Healthcare, accounts now for 70% of it, which is a new milestone. Cofinimmo also manage efficiently its financial structure. A few example.
Our interest rate risk is hedged at nearly 90% until the end of 2025. Our average cost of debt stays low at 1.2%. We refinance or set up new financing for more than EUR 1.1 billion. We maintain our debt-to-asset ratio at 45.6%, or headroom on committed credit lines amount to EUR 779 million, and all maturities of 2023 were, in the meantime, secured. Adapting to the new macroeconomic reality in 2023, we plan more or less EUR 200 million of investment and EUR 200 million of divestment, of which, more or less EUR 85 million are already signed. This should be neutral on our estimated LTV, stable at 45.6%.
Based on that, we contemplate a stable gross dividend at EUR 6.20 per share for the 2023 financial year, payable in 2024. Last but not least, on the ESG front, and I come back on this later, we continue to be a green leader. Two days ago, we have been included in the new BEL ESG Index by Euronext after being selected as one of the top SBTI ESG bond issuers a few weeks ago. We've got several new BREEAM certifications for Healthcare Real Estate, including the first two in Germany. You all know our company profile and strategy, I will skip immediately to slide number five. Number eight, sorry. The chart on this slide shows the big shift toward healthcare. In only five years, we moved from 45% - 70% of Healthcare Real Estate in our global portfolio.
In the same time, offices went from 34% - 22% and distribution network was reduced by half. As you know, we own properties in nine European countries, as illustrated on slide number nine. End of 2022, 45% of Cofinimmo's total portfolio is located outside of Belgium. On slide 10, you can see that with EUR 547 million, our investment in healthcare remains solid despite a challenging environment. We also continue the disposal of Cofinimmo One, which are the MAAF insurance agencies in France. We have already divested around EUR 110 million of this portfolio since the start of the process in 2021, of which more than EUR 50 million in 2022.
We should be able to divest the entire portfolio by the end of this year, which only represents 0.3% of the total portfolio at year-end 2022. On slide 11, you can witness our accelerated portfolio growth since 2018, on average 14% per year. As I said, Cofinimmo plans to continue the expansion in Healthcare Real Estate. In the meantime, we kept the debt-to-asset ratio under control around 45%, far below the legal covenant. As you know, Cofinimmo has been a pioneer in ESG since 15 years. As one of the 20 leading listed company in Belgium, Cofinimmo does set the tone in Belgium. This was again illustrated two days ago when Cofinimmo was included in the brand new BEL ESG Index launched by Euronext. On the ESG financing side, we have been added to the top SBTI.
SBTI is an acronym for Science Based Targets initiative, 1.5 degree ESG bond issuer by Euronext. We also been granted several new green certificates, including the first two in Germany. This shows that on the ESG side, we are seen as a very credible player by all stakeholders. I will skip slide 13 to 16. On slide 17, you see that the COVID-19 pandemic in Europe, fortunately, 2022 has been a year where we saw a reduction of the virus infection and a softening of the measure everywhere in Europe. This has proven a relief for all the people active in the healthcare sector. Cofinimmo market cap was approximately EUR 2.8 billion at the end of 2022. The daily liquidity remains sound. You all know how the share price of real estate companies evolved in 2022.
As a consequence, the share price shows a discount on 23% compared to the IFRS net asset value per share. Let's talk about the property portfolio. As shown on slide 20, the occupancy rate at the end of 2022 improved by 60 basis points to reach 98.7% compared to 98.1% at the end of 2021. In healthcare, the occupancy rate is almost at 100%. In the Office segment, the rate has reached 94.2%, coming from 88% at the end of 2017. This is mainly due to the new rental and the disposal of many office buildings in the Brussels decentralized area and periphery. We also see on this slide the top 10 list of our tenant.
I'm on slide 21. As shown there, the weighted average original lease term is 13 years, so even better than the end of 2020. Let's highlight the figure for healthcare, which stand at 15 years. Slide 22. Compared to last year, gross yields have shown resilience at 5.6%, the same level as 2021. On average, our net yield stay well above 5%. I invite now Sébastien Berden, our COO Healthcare, to take you through the highlight of the healthcare segment.
Thank you, Jean-Pierre, and good morning, everyone. Our continued investment clearly illustrates our mission to consolidate our leadership in healthcare real estate in Europe. As you can see on slide 24, we are now active in nine European countries. Last year, we strengthened our diversification in healthcare asset sub-segment, which is a clear differentiator from our peers. On slide 25 now, where you can see that our investment activity in healthcare stayed solid in 2022. Despite the macroeconomic challenges, the group invested EUR 547 million in high quality Healthcare Real Estate. The fair value of our healthcare segment now amounts to EUR 4.4 billion, and we own now 300 sites for above 1.7 million sqm . The following slide records all acquisitions that were made throughout 2022 and our acquisitions in the first quarter of 2022 until today.
Let's move to slide 26. Out of this list, I'd like to highlight two deals. You can see that we have invested no less than 42 healthcare deals in seven different countries, but two of those were quite peculiar. Allow me to the asset of Neo Rocourt and Villa Batavia. You will, we have financed this through a contribution in-kind. You will remember that this structuring boils down to paying for an asset or a prop co with newly issued shares. It is thus, it does offer the double merit of acquiring an asset and strengthening our shareholders' equity at the same time. Neo Rocourt, in the middle of the slide, is a premium asset delivered last summer and located near Liège, the fourth largest city in Europe, in Belgium.
It has a surface of approximately 10,000 sqm and offers 159 beds and represents an investment value of EUR 34 million. The ESG and energy intensity credentials of this building are very good. We've also worked on this with Care-ion, which is a well-known operator in Belgium, running close to 20 nursing homes all over the country. We have signed a double net lease for 27 years. Villa Batavia is the second deal we did through a contribution in-kind in December. It is also a brand new facility delivered a couple of months ago. It is located in Grimbergen, an affluent and green neighborhood north of Brussels. It represents also a very good performance on ESG levels.
The investment value is above EUR 80 million for approximately 5,600 sqm , and it offers 82 beds for elderly care people. The transaction allows us to reinforce our partnership with Orelia, a leading Belgian operator running more than 50 nursing homes in Belgium. Orelia has a management that benefits from more than 40 years of experience in running and developing care facilities in different countries. I will now pass the floor to my colleague, Yeliz, who will highlight some projects in her geographies.
Thank you, Sébastien, and hello to everyone. Let me continue by highlighting some transactions in Germany. As you can see on slide 27, we completed the development of a highly sustainable and innovative healthcare site in Jülich. This is the first of a larger pipeline of nine assets in the North Rhine-Westphalia region, totaling 1,200 units for over EUR 270 million and with deliveries planned in 2023 and 2024. As was announced at end of 2020, this marks an exclusive partnership with a local and experienced developer. This first project in Jülich has around 120 beds and is leased to Schönes Leben Gruppe with a double net lease of 25 years.
In terms of ESG, and this is valid for the entire pipeline, the project aims the highest standards in terms of quality and energy intensity, with a targeted energy label of 60% lower than the benchmark. In the same city of Jülich, we acquired a nursing and care home operated by Schönes Leben Gruppe as well, and with a 25 years double net lease counting 80 beds and representing an investment of EUR 80 million. Moving south now to Spain on slide 28. In 2022, we were very active and continued to expand our footprints in the Spanish healthcare landscape. We now have 31 properties in operation, 14 ongoing development projects, and two land reserves there. To name but two achievements, in Madrid, we acquired a nursing and care home operated by Emera España and ticking all the boxes.
A prime location in central Madrid with 113 beds. A triple net lease of 12 years, welcoming a new operator to our portfolio and a sustainable building with an energy label A. In the region of Andalusia, we are building a state-of-the-art nursing and care home in the city of Maracena. We're aiming for a BREEAM excellent label for this very modern building, which will be delivered by end of 2024. The building, with 180 units and an investment of EUR 12 million, will be operated by Grupo Reifs with a 30 years triple net lease. Finally, we go to Finland, to Rovaniemi.
After the successful delivery and immediate full occupancy of a first brand new nursing and care home with 57 beds, operator Leona Group asked us to build an extension to this residence with an additional 56 beds and based on a double net lease of 20 years. Both assets represent a total investment of EUR 17 million and have a low energy intensity label A. We can now move on to slide 32 for the breakdown of our distribution networks, which is now mostly comprised of the Pubstone portfolio. Our two portfolios, Pubstone and Cofinimmo, represent at end December 2022 a fair value of EUR 500 million. Both networks together cover 330,000 sqm and count now 939 assets.
Let me remind you that for Pubstone, we have a long-term contract with a solid tenant, which is the brewer AB InBev, both in Belgium and in the Netherlands. On slide 33, an update on the other part of the distribution network, which is Cofinimmo. It is composed of insurance agencies of French insurer MAAF and almost entirely sold. At this stage, 253 assets have already been sold or are in the process of being sold. This represents a fair value of almost EUR 110 million. The remaining assets are worth around EUR 2 million. Let's now talk about the Office segment as of slide 35. The fair value of the Office segment represents EUR 1.4 billion at end 2022 and counts 57 sites for 450,000 sqm .
On slide 36, you can see on the map and the bar chart that our strategy is to create value through capital recycling, upgrading and rebalancing portfolio towards Brussels Central Business District . We are also speeding up the divestments in the decentralized or peripheral regions. In total, since 2018 and up to end 2022, we sold for approximately EUR 200 million in those areas, most of them above the latest fair value. The following slides give a chronological update on this, and I will highlight only two or three transactions. We can skip slides 37 and 38. On slide 39. We see the divestment of three office buildings in the decentralized area of Brussels for EUR 52 million. On slide 41 now, the divestment of the Omega Court building amounting to EUR 28 million above fair value.
On slide 42, you see the future acquisition of the Loi 89 building in the heart of the CBD. We've done this deal in order to optimize a future redevelopment towards a new sustainable flagship. Moving to slide 43. At the very end of 2022, we signed and closed the divestment of three office buildings in Brussels periphery, Brussels decentralized, and Tournai for approximately EUR 43 million above fair value. You see a lot of achievements and many more to come. I will now hand over to Jean Kotarakos, our CFO, for the financial results.
Thank you, Yeliz. Good morning, everyone. I will now go through the financial results. Let me begin with the overall portfolio. We can see on slide 45 that the gross rental revenue grew almost 9% year-on-year. This represents a like-for-like rental growth of 4.5%, mainly driven by new lettings, renegotiations, and indexation. On slide 46, we see that the net result from core activity, the EPRA earnings, reached EUR 222 million, up 5% compared to 2021. This gives us an EPRA EPS of EUR 6.95 per share, higher than the outlook and including the effect of divestment and capital increases totaling EUR 0.85 per share. It was EUR 0.59 for the dilution and EUR 0.26 per share for the divestments.
After having commented the net result from core activities, let's have a look at the other items that bring us to the IFRS net result on slide 47. The financial instrument's net income of EUR 270 million is mainly due to the fair valuation of the hedging instruments, in line with the change of future interest rates on the financial markets over the period. These are non-cash items. The result on the portfolio amounts to EUR 44 million, versus EUR 7 million in 2022. The net result group share stands at EUR 483 million or EUR 15.09 per share versus EUR 260 million one year earlier. Regarding our balance sheet structure on slide 48, there are no surprises. The total assets overpass EUR 6.8 billion and 91% of it are investment properties at fair value.
They are financed by EUR 3.6 billion of equity and EUR 3 billion of financial and non-financial debts. On slide 49, we analyze the change of the debt-to-asset ratio between end 2021, where it was 44.2x, and the 31st of December 2022, where it was 45.6x. The slightly higher ratio year-over-year comes primarily from the investment properties, from the investment in investment properties, +4.6%. The dividend payout, +2.8%, and other balance sheet items, +0.7%. Offset by divestment, -1.2%. Write backs and mark to market, -0.6%. The net result from core activities, -3.3%, and capital increases, -1.7%.
The divestments that are already signed would make the debt-to-asset ratio decrease by approximately another 1%. On slide 50, and depending on the EPRA concept you find the most relevant, you can see that the NAV is somewhere between EUR 106 million and EUR 180 million. Sorry, euro per share. That's the NAV per share. I can comment here on the evolution of the IFRS NAV between end 2021 and end 2022, where it stood at EUR 102 per share versus EUR 110.74 today, meaning in fact that it increased by 7%. There are three main drivers behind this increase. First, the deduction of the 2021 dividend in Q2 for EUR 6.
The impact of the four capital increases of the period, being the contributions in-kind of May, the optional dividend of June, and the two contributions in-kind of December. The net impact of these four capital increases on the IFRS NAV is nil. We need to account for the accumulation of the result for the period, which generates a positive impact of approx EUR 15 per share. If we summarize, we had an IFRS NAV of about EUR 102 per share at year-end, less EUR 6 for the dividend, EUR +15 of accumulation of profit, which means about EUR 111 at the end of the period. Let's have a look now at what we did on the financing side as of slide 52.
With EUR 140 million of equity raised through contribution in-kind and optional dividend, we see that this kind of equity issuance was possible despite the macroeconomic environment. On the debt capital markets in early January 2022, we issued with success a new sustainable benchmark bond of EUR 500 million that was oversubscribed 2.5 x at a rate of 1% on six years, conditions we were, condition where one can only dream of today. Our S&P credit rating was confirmed in March 2022, as long for the long term, triple B with a stable outlook. As what our financing activity in 2022 is concerned, we can only conclude that we've been very busy, as you can see here on slide 54.
All in all, we added or refinance for around EUR 1.1 billion of financing in 2022. As a consequence, we have now more than EUR 2.5 billion in sustainable financing under the form of several instruments, including a sustainable commercial paper program. Slide 56 gives a detailed analysis of the debt instrument we use, highlighting the ongoing access to diversified funding sources, among others, relation with 20 leading banks. Moving to slide 57, the average debt maturity amounts to five years. At the same time, the average cost of debt has only slightly increased in line with the budget at 1.2% in 2022 versus 1.1% in 2021. On slide 58, we can see that we have no maturity left in 2023, and that the debt maturities are well spread.
At end of December 2022, the headroom of the committed credit lines is about EUR 779 million. We turn to slide 55, and on the hedging side we see that more than 90% of the group's current debt is either fixed or hedged until 2025. This percentage is even at 100% in 2023. Now I pass over to Jean-Pierre for the highlights on our investment budget and the outlook for 2023.
Thank you, Jean. On slide 61, you will find the breakdown of our initial 2023 investment budget as we publish it in our press release this morning. As you can see here in the pie chart, we plan investment of EUR 300 million gross, of which the lion's share will go to Healthcare Real Estate. Most of this amount arise from the execution of the ongoing development project shown under the heading committed. The amount for offices and distribution network are mostly CapEx related. Important to note that we also foresee to accelerate our divestment, for which we target EUR 300 million. This implies that the net investment would then be nil and be neutral on the debt-to-asset ratio based on the budgeted assumption. This give us, as shown on slide 62, a portfolio outlook for 2023 of circa EUR 6.4 billion.
Let's now have a look at the outlook for 2023 on slide 63. Taking into account the investment estimate just described, our outlook for 2023 stand at EUR 6.95 per share at the level of the net current result from core activities for the year 2023. This include the pro rata temporary dilutive effect of the capital increase carried out last year in 2022, estimated at EUR 0.18 per share, and also the effect of the divestment carried out in 2022 and the ones budgeted in 2023, estimated at EUR 0.28 per share. For your convenience, we also added a line showing the expected denominator for the computation of the 2023 EPS. Those figures allow us to contemplate a gross dividend of EUR 6.20 per share for 2023, stable compared to 2022. We want to thank you all for your attention, and we are here now to answer your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line, Celine Soo-Huynh from Barclays. The line is open now. Please go ahead.
Hi, everyone. Thanks for the presentation. I just have one question, please. Can you talk about your hedging policy for this year and how you're seeing cost of debt evolving in 2023, 2024 from the 1.2% currently? Thank you.
Right. Give the word to Jean for this question.
The hedging policy is to. The stated policy is to hedge at least 50%, but you see that in practice, we are at 100% for the year 2023 and around 90% for the year afterwards. That's a very, very safe hedging policy based on the hedging that we have already accumulated in the year before. A very interesting interest rate. You have the full disclosure in the annual report with all the lines of the portfolio.
Thank you.
Thanks for that. Thanks to that, the interest rate, the average cost of debt is expected to slightly increase in the budget for 2023 and to marginally increase the year afterwards, as it was already the case in the previous estimation that we commented here last year. We know that the cost of debt is slightly increasing year- on- year.
Super. Can you give us a number?
I haven't said the number.
Okay.
Slightly higher than the 1.2%.
Sorry.
Slightly higher than the 1.2% of this year.
Jean, can you say a word about refinancing at the moment? If you were to go to a bank currently, how would the cost of that look like all in?
Refinancing, as you have heard earlier, we made new. We added new lines or re-refinance line for EUR 1.1 billion in 2023. 2022, sorry. Which means that we besides the bonds of early January, we also set up a new syndicated loan and a lot of refinancing in addition. We can see there that the average condition are really comparable to the ones of the year before. That being said, you should also take into account the fact that banking financing is much cheaper than the quotation that you will see on the, on Bloomberg, for example, for the bond.
Mm-hmm.
The quotation of the bond is not a proxy for new banking credit lines. Now if we had to add a new line for the long term, we should be somewhere above 100 basis points, depending on the duration and the bank.
Thank you.
In a nutshell, no refinancing need with the current perimeter in 2023. If we had to add bank financing, we still have it at very attractive conditions.
Thank you, [Jean-Pierre] .
Thank you. We will take the next question from line Véronique from Kempen. The line is open now, please go ahead.
Thank you for the presentation, all. A few questions from my side. Maybe to start off, if you could give an update on your view towards operator health. Yesterday, we saw a press release from Orpea, closing also two homes of Cofinimmo. I was curious to get an update or a view on that, please.
Yes. Well, of course, you know, the topic in Brussels and in Belgium is something we are discussing with them for several weeks. They officially, finally, inform the market, I would say, and their employee, only yesterday. It's basically following the decision which was taken already back in September. You may remember that the new management has announced new strategic priorities. For us, it's only two homes. You know, basically, it's part of the strategy and, you know that we have EUR 300 million of divestment for this year. There is, of course, many different topics in there.
More globally, going beyond Orpea. You know, I would say that on Orpea, the biggest news is the entry of the CDC and the other insurance company that are part of the consortium to basically enter into the equity of Orpea, which was of course, a big relief for many people except the current shareholders, of course, which are basically completely diluted. Orpea will go on. On, you know, globally, the operators where it's clear that there is a concentration of, and of course, with a low occupancy, high energy cost and indexation.
Now, on indexation, the big topic for them is not that much the rental, but it's the staff, because as you know, staff represent 60% of on average on the cost of an operator. Basically, those who were a bit aggressive in terms of a greenfield or an acquisition are a bit suffering. You know, it's mainly due to the fact as well that the COVID supporting schemes have all phased out. Clearly, since a few months, it's, you know, probably for certain of these operators a bit challenging. Of course, you know, we are in a lengthy discussion with some of them. They are, you know, they have planned.
We discussed that with them. And it's not because you have suddenly an announcement of an operator, which at the end of the day take the decision to file for bankruptcy. That is not something we were not known before. And, you know, the ongoing divestment process of certain of these assets started already, you know, since a while. It's only a few. And, basically, there is nothing more than what has already been disclosed in our press release that basically is worth to notice at this time.
Okay. Thank you. That's, that's helpful. Assuming on those disposals, you targeted around EUR 300 million, you already assigned some in the market. How do you see the market at this point in time? Also in terms of valuations? I see the yield for Offices came down 30 basis points year-on-year, which was quite surprising by view, but your values only went up 2.4% like. Does it mean that ERVs in the office in your office portfolio are coming down at the moment?
Well, you know, first comment when you look at 2022, many people were, you know, projecting that it would be impossible for us to sell the or target at EUR 140 million. You see that we have been able to do it at fair value. At least that was for 2022, which was already a quite a challenging year. Now, if you look at offices, if you zoom on Offices, they are still doing this first quarter in the CBD transaction that are made at yields that are very close to a pre-crisis. I'm not being naive, I know that there will be here and there some challenge. Some yield adjustment.
I think, you know, I don't have any crystal ball, so I can either take my very pessimistic hat and say, "Look, it would be dramatic and will be really a big challenge," or I prefer to be pragmatic and to continue on the same trajectory that we have done last year. Knowing that the work we have done during the last four years by repositioning our portfolio to the CBD is paying out today. As you know, and it's something which is not specific to Belgium, when you look at the office market across Europe, the CBD markets are resisting quite well. We remember that in the CBD we are in the best area, which is the Leopold district, which is clearly the prime area of the CBD.
The occupancy, by the way, in the Leopold district, is also going up. Yes, it's not easy. Yes, it's challenging, but I think we should also not forget the reality that basically we have some flexibility with our portfolio to basically pick up the asset we consider that are liquid. Because, for example, they can be repurposed in a residential or because we received non-solicited offer that we consider attractive. Because there are still money looking to be deployed in the in this segment, either by local developer for residential purposes or by family offices that still wants to expand in the real estate.
Okay. That's clear. For the amount, the EUR 300 million, you'll be a sort of like net zero investor, LTV expected to be stable, but taking no negative revaluation into account, should you perhaps do more or are you thinking about a script dividend or more contributions in, well, you're not investing that much, but contributions in kind to maybe take the LTV down a little bit further?
It could be. You know, we had to pick up a number for the budget. What is important is that we want to be a net zero investor. The divestment could go up as well, if need be. Contribution in kind are indeed a bit special deals, because basically, they, you know, come up after, you know, more of the time, very long discussions, so it's very difficult to predict the timing or even the feasibility. It's clear that the few contribution in kind we have made last year are clearly had a favorable effect on our LTV.
Okay. Thank you very much. That's it from my side.
Thank you. We will take the next question from line, Steven Boumans from ABN AMRO. The line is open now, please go ahead.
Hi. Good morning. Thank you for taking my questions, of course. I've got several separated questions. The first one is what is the average residual lease term for the French portfolio, and what can we expect from renewals in terms of leasing spreads and/or CapEx needs for France? First.
Well, it's, you know, something we negotiate with our French operators. You know that if, you know, the contract is coming close to the end, then discussion are ongoing for renewal. There is nothing different, frankly speaking, compared to the last years with a big S. It's an ongoing process. It's all portfolio outside of Belgium, but you know that in France the lease term are limited by law and much lower than here in Belgium. I would say it's business as usual and no difference compared to the two previous years.
Okay. Clear. I have a question on the investment markets, because while you're still doing some investments, I saw in Belgium there was also a deal in Q4 for a 4.5 % yield. That seems quite sharp to me. Could you please elaborate why that's a good deal? Furthermore, what you expect in terms of yields in the different countries that you are active?
Yes. Well, you know, the, those transaction are basically, prime assets, in terms of quality of real estate, localization. It's also reflect the market yield, and we have basically asked to, several source to, double-check, that. For prime asset of this type, basically, it was, fully in line, with the market yield. Now, the fact that in contribution in-kind, of course, is the advantage, of everybody, including, the, other shareholders, and I think that's why it was positively perceived, by, the, various, observer. Now, if I look at Europe, you know, yield have to move, clearly. The situation is, very different, from one country to the other.
I think the most severe movement will probably come from the U.K. and from the Nordic countries. The U.K. for reasons that are specific to the U.K. and you know, in what situation the U.K. economy is, which of course has an impact on local financing. I think if you look at the various report of the U.K. real estate companies, you see clearly a move on the yield in these countries, which is, you know, clearly visible. In the Nordic countries, you know, these countries have been living at very aggressive yields for a while, that's why, you know, in Sweden and Finland for at least non-prime assets, you will see some serious yet expansion. For the prime, it will be less, but still, you know, the market was living, you know, I remember, still, in 2021, you had deals well below 4% on this market.
Okay. Yeah. It also implies so for, let's say, we see some acquisitions into Q1 or Q2, you expect them to be only a slightly higher yields than what you report today for the continental Europe?
Well, it depends highly on the type of asset on the country. Don't forget that the indexation is also, has, of course, an impact not to be disregarded. You cannot just forecast a yield expansion without forecasting the indexation, which is, of course, always applicable.
Okay. Clear. Last question is on ERVs. Are they fully reflected in the last valuation, or is that not fully reflected in the terminal valuations, for example?
Could you repeat the question?
On valuations, is the effects of indexation and inflation fully reflected in the ERVs already?
Yeah.
Is that lagging a bit? Maybe not in the terminal value.
It's lagging behind. The ERV do not,
Yeah.
Do not increase as fast as the contractual rent.
Okay. Clear. Thank you.
Thank you. We will take the next question from line, Francesca Ferragina from ING. The line is open now. Please go ahead.
Hello. Good morning, everybody. Thanks for taking my question. I have a few. The first one is related to the guidance. Can you explicit the organic growth that is implied in the full year indication? Can you hear me?
Yeah, yeah, yeah. We are just taking the right page in the slide. We will direct you then.
Francesca, what is precisely your question?
Uh, what-
We look at the outlook, okay? The precise question is?
Yes. Looking at the guidance, what is the organic growth that is implied in this number?
Well, it depends what you call organic growth, huh? What you see on page 63 is that in the EUR 6.95 per share of EPS that we announce for next year, you have the impact of the disposal for EUR 0.28 negative, the impact of the dilution for EUR 0.18. If you deduct that, you will find the number of lying EPS of EUR 7.41 per share. This includes what I would call the organic growth, which is just indexation, improvement of the improvement of the occupancy rate and so on. Then the acquisition that we have foreseen and which is, I would say, the normal trend for a company like Cofinimmo. That it's EUR 0.46 per share.
Okay. Maybe a couple of questions on the disposal. First one is, if you are keen to sell also some healthcare properties. The second, if you can make a comment and update about the partnership with the Office portfolio, please.
In the EUR 300 million, there are a few healthcare properties that are in there. Yes, but the big chunk is offices. Regarding the partnership, I will just basically repeat what I said at the beginning of last year. Given of the current macroeconomic context, we want to keep our full freedom in deciding which offices we want to divest. You've seen that we already start last year, and of course, this year will be more important.
To keep this full flexibility and freedom and have a partner at the same time with, by definition, with whom we would have to discuss, agree, convene, board meeting, and so on, to basically agree on the list of offices to basically divest, it will delay us significantly and we would lose agility. That's why, for the time being, the focus is more on keeping this agility while of course, once the context and the dust we have settled, we will then of course, consider more seriously the opening of the equity.
Okay. That's, that's fair. Changing arguments, on the tenant, can you elaborate a bit about the discussion you have with tenants when looking at 2023? Do you have any pushback on indexation, or have you seen any difference in the payment behavior so far? Can you give some more color on this? Thanks.
Yeah. Well, you know, the indexation went well, as you can see, in 2022. You see that the peak of inflation seems to be behind us. Basically, there is no, you know, you know, not a general context of continuous concern about the indexation. Yes, it's still high, but I would say, you know, financing are high, and what is very important for the operators is the authorization that they are received to increase the daily rate at the nursing home. You see that many region of countries have allowed exceptionally, operators to raise their daily rate more than once a year.
Now, it depends from one region to the others, but you see that basically they are able to increase their income as well. That's, you know, reflected also in many local newspapers that basically the daily rate of nursing home are going up, like, you know, many other prices. The capability of this operator to basically increase the daily rate, which is happening more and more now is of course a big relief for them.
Clear. Thank you.
Thank you. We will take the next question from line Herman van der Loos from Bank of Degroof Petercam. The line is open now, please go ahead.
Yes. Good morning. It's Herman van der Loos , Degroof Petercam. Thank you for the presentation. Thank you for taking my questions. After all these questions, I still have a lot left. First of all, to be clear, the disposals in office that you are planning, it concerns disposals like now. We are not talking about a disposal of a chunk of Cofinimmo office?
No. We are talking about asset by asset. Indeed it's not of the entity itself.
Okay. And okay. You confirmed the your stance that you are not in a hurry and you wait better times to sell. I mean, I know it is taking Cofinimmo offices.
Let me be maybe nuance in this. If, you know, someone would be interested to take a chunk, we will always listen, but we are not, I would say, focusing on this. A dual track would still be possible. You know, given the ambition we have in terms of divestment, we want to make sure that we keep full flexibility. If the two are compatible, you know, why not? So far we consider that basically, you know, time is of the essence. That's why I react a little bit when you say we are not in a hurry. We are in hurry every day for what we are doing. We remain open, but for us the priority is to keep our agility and our flexibility.
Okay. Thank you. On slide 63, if I depart from 2023 underlying, I see there is a negative impact of dilution. You're talking about dilution of past capital increases. You don't expect any capital increase or optional dividend this year, right?
Indeed. It's only the dilution of the capital increases that we have made in 2022.
For the sub-dividend of this year, Herman, because you know that it's something we only decide, you know, a few days or weeks before May. It's something which is always done every year, depending on where we are at that time and the market condition and so on.
Okay. I understand that. Thank you. Yes, we see the impact, so the dilution, we see the impact of the disposals, but I understand that most of the acquisitions planned for healthcare are already committed or a very, very, very small part is hypothetical. Do I have to understand that this, that these acquisitions in Healthcare are going to be done at the end of the year, or that they are already included in the underlying because I don't see any impact? I see only dilution disposable, but no positive impacts for acquisitions, or is it already included in 2023 underlying?
No it's in the underlying.
Okay.
That you can say, or you can consider that it will be spread over the year because it will mainly arise from the delivery of the projects that are already ongoing.
Okay.
You have in the first list the full list of the projects with the dates that are foreseen for the delivery.
Okay.
So we can modelize that quite precisely, I think.
Okay. Okay. Fair enough. Thank you. On Orpea, I'm sorry to conduct with that. Bear with me. My question is, on Orpea, to be very, very, very practical, you are affected by two nursing homes. I understand that you are willing to sell them. Are you going to get a termination fee for Orpea? You're not trying to have a new operator, you're trying to sell it, and you get a big termination fee. Could you tell us how much, if any, termination fee you get?
They are ironclad contract on these assets. If Orpea wants to stop their business there, it's their decision. Our business is to make sure that the contract is respected.
We're talking about six months termination fee or one year termination fee, or?
No, no. There is, why are we talking about termination fee? I mean, there is nothing in the contract. It's basically a long-term contract.
Okay. You have to negotiate with them.
They will have to negotiate. I'm not in a negotiation mood.
Okay. I understand. You say I have a iron contract, so I wait for them to come.
Well, you know, it's a unilateral decision on their side, to do this, in spite of a global plan, and so on. Look, you know, we are in business to do business and to make sure that we have win-win situation. If you have a counterparty, you taking a unilateral decision, well, first you sit and you have a contract and that's basically the other party has to make a attractive proposition. Just saying, "I'm... You know, stop the business," fine, but, you know, as long as you pay the rent.
Okay.
So, uh-
In the disposals, the two assets of Orpea versus where you are in, are this a part of disposals, I think, I guess?
Well, you know, these two assets, you know, if there is no final agreement with Orpea, I do not exclude there will be final agreement. Basically, and you know that our colleagues in Brussels have five assets, they come up with something, but who knows, at the end if these seven assets will be effectively be closed, huh? Before talking about settings, they can be part of the EUR 300 million, let's see what happens at the end.
Could you tell us what is the underlying occupancy of Grey Crown and Linthout?
Sorry, can you say it again?
What is the underlying occupancy of Grey Crown and Linthout?
I don't have it in my heart, but you know, the Grey Crown is, you know, an asset which is very well located. Linthout is, you know, a business which is ongoing for a while. I don't have the occupancy here available, but I don't think that the occupancy is a topic of negotiation, because as you know, we are not responsible for the occupancy of the assets. For me, whatever it is, it's not part of the discussion
Okay. My last question is not enough Orpea. Do you confirm what kind, could you have some flavor on the profitability of operators? Could you tell us if most operators can cover rents with EBITDA 1.5x, 1.6x, 1.8x, or do you know some operators in your portfolio that are struggling, or you are happy with the healthcare of operators in your portfolio?
Well, you know, it's of course, when we look at globally, operators, there is no large or big topic. We know of few houses that, in terms of the post-COVID, time, and, you know, we are talking sometimes of house that have been just opened, before the COVID are a bit struggling. Basically, you know, it's something we follow carefully, but no large and hot topics.
Okay. Thank you. Thank you very much.
Thank you. We will take the next question from line Markus Kulesza from Bank of America. The line is open now. Please go ahead.
Yeah. Hello. Thank you for taking my question. As a follow-up on the last, just last question. Can you give maybe your average rent to EBITDA over the whole of your portfolio, and then confirm or not if the 2022 rent to EBITDA is gonna improve in 2023 with the price increases your operators are passing through or if it's gonna stay stable?
Basically, you know, the average effort rate, of course, depends from one country to the other. Usually, if I take a global figures from the whole portfolio, I am around 60%.
If what you're saying-
I'm not sure I understood, is it because I was listening to your question and thinking at the same time, did I answer to your question or there was a second question in your question?
Yeah, second question. Effort rate of your tenants, what do you take? It's, what is the ratio exactly just to bring it to rent to EBITDA level?
The rents to EBITDA is approximately 55%-60%.
Okay.
All over the portfolio. However, It can be quite different from country to country.
Yeah, of course. Now I wanted to average. Is it gonna improve or do you see? Maybe it's too short in 2023, if it's gonna improve in 2023, thanks to the price increases, or is this just gonna stay stable?
2021 was of course a difficult year because of COVID. 2021 was a bit down compared to previous years, so we expect that it will improve.
Okay. Thank you. You talked a lot already on the acquisition. I just wanted to know the net yields you're signing the office disposals, maybe at the EUR 85 million already signed. Also the yield on cost on average, roughly on the EUR 300 million investments for 2023.
Well, you know, most of the office we are selling are for redevelopment purposes. The yield might be quite different from one situation to the other. If you look at the net yield of our portfolio is in one of the slides, I think it's 5.2% for the offices globally. Now we are selling a bit more outside of the CBD than in the CBD, where, you know, yield a bit higher. I think you can take the 5.2% as, you know, average for the portfolio. We have not computed for the EUR 300 million, what would be exactly the yield on the yield on cost, because we do not consider it, we don't consider this EUR 300 million as a one portfolio. It's basically filled in by many different assets from different segment as well. For us, it's not relevant to have one yield for this EUR 300 million.
Okay. Thank you. Well, just to get an idea if you're developing or getting the projects in at 4.5% or 4%, and then maybe we end up more at 5% to see if you, there's a potential.
Well, you know, the yield on cost, well, coming back on the Offices, the average yield of the portfolio is 5.2%. You know that the yield in the CBD are much lower, which means that if you divest outside of the CBD, yields are clearly well above 5.2% and closer to 7%, I would say, on average. In terms of development, we are not redeveloping ourself office. We do that from time to time, but I would say, you know, one object every three years. For the global Cofinimmo, the total impact is not really important. What the buyer is doing is relevant to us because if we know that they are redeveloping an asset in a redevelopment purposes, we know the type of margin they can expect. Of course, we use this in our negotiation for the price of the assets to be sold.
Yeah. Okay. Thank you. I was already on your development pipeline, on your EUR 300 million investments, what the yield there would be versus-
Well, you know, I think, the yield also differ from one country to the other, so I don't have an average yield.
You mean the development pipeline that is still already occurring?
Yes. Yeah. The EUR 300 million, yes.
Yeah. The average is around 5%, huh?
Yes.
It has been said several times before.
Has not changed. Yes. Around 5%, yes.
Okay. Then last question, just did you look at the Deutsche Wohnen portfolio in Germany and maybe to pre-live a bit with it? Yep.
We look at everything on the market, and we never comment on any specific one. To the best of my knowledge, it's still on the market.
Okay. Is it better quality than your existing stock? At the right price it could be interesting, or it is just not interesting, or maybe Germany.
You know, I would tell you those who cannot afford or, you know, cannot buy it are all saying that it's crap. Those who are looking at it are saying that prime quality. I would tell you, there is a lot of things different in this portfolio. You have quality wise certain sub-portfolio that are clearly not at all standards, and there are others that, you know, closer to a standard. It's a mix of very different sub-portfolio which reflect basically what Deutsche Wohnen has done over several years. They had already divested, as you may know, certain problematic portfolio. It's a wide mix, I would say.
Okay. You just said it's still in the market because yesterday your, Aedifica said it's put on hold.
Maybe, they have better information than us. It means that, they were in there. My knowledge, it's still on the market.
Okay. Thank you very much.
I've not seen any announcement that it was off. The operators, the sale of the two operators might be that I've heard strong rumors that they were not trying anymore to sell the two operators. I don't remember exactly the name of the second one. You know, I think the best is to ask Vonovia.
Yep. Thank you for your insight.
Thank you. We will take the next question from line Edoardo Gili from Green Street. The line is open now. Please go ahead.
Good morning, everybody. First question I have is on the revaluation over Q4. Sounds like you had a negative revaluation, unless I'm mistaken. I was wondering if you could give some color around perhaps country by country breakdown, or just maybe a high level information which countries saw a different revaluation evolution.
Yeah. You can look at the breakdown in the press release, the table is provided. I don't remember on what page, it's given by segment and sub-segment. You see that the Healthcare is positive for the full year, but slightly less than what it was at end of Q3. For the Office, same story. For the distribution network, it's slightly negative, while it was very slightly positive at end of Q3. Now, if you look at differences, I think that the main item is the U.K., where you see an increase of the cap rate, which is clear coming from the market. I would say that all the rest is more linked to specific items because we do a review with the independent valuer item by item.
You also have the impact of the Netherlands, where you have an increase of the real estate transfer taxes as from the 1st of January, and that accounted for EUR 30 million of the devaluation of the Netherlands, the Dutch assets between Q3 and Q4, because we took the hit in the accounts of Q4 and not in the accounts of Q1 2023. There, too, in the Netherlands, you see a big, big difference compared to Q3.
Understood. Thank you. In terms of the debt to assets ratio, which currently is at 46%, obviously it's, you know, it's a wide range between 46% and your covenant at 65%. I was wondering what type of LTV are you comfortable with over the rest of the year? I know you're underwriting a similar LTV for 2023, but, you know, is it 50%, which would be a ceiling or higher than that?
No. Anyway, the policy is to be around 45%, huh. That allows for some flexibility, of course, above or below 45%. There is no plan to deviate from that policy of around 45%.
I think, you know, the fact that we are targeting to being net zero investors, I think shows that, you know, clearly, it's an important topic, and we are managing on a almost daily basis our LTV. Not being a net investors, I think, is already hinting at, you know, what we target of doing.
Understood. You're basically implying that you're expecting that like-for-like valuation is not going to be negative throughout the year.
There, there would be some yield expansion. Let's not be naive. I think on the Healthcare side, of course, we are helped with strong flow and low risk. If you look back, I know it's not a proxy, but at the financial crisis, 2008, there has been almost zero yield expansion. I know you cannot compare, I think, you know, nobody expect that this asset class, except in the U.K., will and maybe in the Nordic, to be consistent with what I said, you can expect a significant move.
On the distribution, I think, we basically exited the most risky portfolio, which was the MAAF portfolio, very risky portfolio from that angle, because we're talking about basement of buildings all over France and 250 different locations, including some village and so on. They're very happy to have done this divestment timely before this crisis. The Pubs, you know, portfolio long-term contract and so on with, you know, solid indexation.
You know, not much to say there. In the Offices, as you can witness from the different European markets, the CBDs are, you know, resisting quite well. Where it's most challenging is basically the second and third tier markets. While in Belgium, it's being a small country, you are in Brussels or outside of Brussels, we don't have second, third, or fourth tiers, market. You see that, we have exited a lot, in there also, quite fast and, before this crisis.
Understood. That's very clear. Thank you. Just in terms of your care home portfolio in Brussels, this is not an OPI question, but, you know, I think the local regulators also perhaps stepping in to kind of fix some of the occupancy issues and maybe oversupply as well. I'm just wondering what could be the impact on your portfolio, and also what is your view for the next five years of the Brussels market?
Yeah. Well, in terms of demography, there is nothing to expect during the next five years. Secondly, the decree of the authorities to basically take back the license for empty beds is, to the best of my knowledge, being challenged by the association of operators. Third, you know, the decision of Orpea is of course, you know, shutting down seven homes in Brussels, is of course probably a relief for the other operators. If they indeed execute and pay the bill, well, basically, it means that there will be less vacancy on the Brussels market.
I think our understanding from this association of nursing home in Brussels is that their lawyers are quite confident that they will succeed in court to have this decree being removed. By the way, is a bit of a cynical approach of the authorities because they are basically enacting this or publishing these decrees just at the end of the COVID, where everybody know that they've been suffering and where also there has been admissions stopped by the authorities. It's a very political move that is being challenged. We'll see.
Understood. Thanks for the color.
If only I can go.
Yeah.
Yeah. If I can add just one small element. This decree only applies to the private segment, which of course is very discriminatory. That's why we, the association of private nursing home operators think they have a good case to challenge the decree.
Understood. Thank you. My last question is around profitability for operators, perhaps in Brussels across your portfolio. But I'm also curious about Spain and Italy, where I think the data is not as clear as some other countries. You know, I think you mentioned earlier 55%-60% effort rate, but if you have a little bit more color on profitability of your operators in those specific geographic segments.
We don't have a country where we are, you know, especially concerned by the profitability of operators. I think, you know, indeed, during the COVID time, the occupancy in Spain was low compared to other countries because there has been a lot of bashing against private operators. This is also the country where there is the biggest lack of infrastructure. What we understand from at least all operators there is that basically the occupancy is moving up. They are confident that, you know, they should go back to the pre-COVID time, thanks to this huge lack of infrastructure, which is quite typical on the market in Spain.
Anything on Italy?
Don't forget as well that, our Spanish portfolio is, you know, a big chunk of it are, brand new assets. In terms of, basically, quality because, we are still making a lot of, development there, we are talking about a high quality building.
Thank you. Anything on Italy specifically?
No. I think Italy, in terms of growth globally and something which is nothing to do with the current macroeconomic context. In Italy, the growth is slow because to build a new asset, you get the license to operate after having erected the building and not before. A few province are changing this now, but not many, which means that there is a big slowdown already before the COVID of the, you know, new building there. The growth in Italy, I don't expect it to be very vivid in the coming years.
I also remind you that we are located in the area of Milan, so we are concentrated around Milan and around Venice, so obviously excellent locations as well. Under
stood. You don't have a high level figure around effort rate for these two countries nor Brussels specifically, correct?
No, no.
Okay, understood. I don't have any more questions. Thank you so much.
Thank you. We will take the next question from line Lynn Hautekeete from KBC Securities. The line is open now. Please go ahead.
Yes. Thank you for your presentation. First question is on the Offices. I think two months ago you gave guidance on the divestment of EUR 200 million in 2023, and now you give EUR 300 million. The difference, does it come from higher expectations on yield expansion, or are you just more confident on the markets?
No, it's a purely budget process. You know, sorry to be sometimes a bit practical, but the EUR 200 million was given before Christmas. You know, we were, I would say at that time, starting our analysis and the EUR 300 million is just a result of finalizing the process. There is, as I said, the big chunk is offices, but there are also a few other assets in there from other segments. It's not that we were, you know, convinced that it would be EUR 200 million and not more. It's just that basically we have...
We kept appraised the market about our process and, we said EUR 200 million, and then we said in January we knew that it would be more than EUR 200 million, did not finalize yet, our budget, and now it has been done. It's, you know, nothing more than that.
Okay. Clear. Are you talking to buyers who are looking to repurpose to residential estate or to redevelop the newer offices?
Yes.
Just without mentioning names?
Yes. You know, these are, I would say, the usual suspect. We have also, we received, you know, unsolicited offers, from people who basically wants to keep the asset as an office. Of course, the most important for us is to know what type of buyer we are talking to because, of course, the price is different whether we know that the assets can or will be repurposed in something else. We know exactly what is the margin that a buyer can do on redevelopment. Of course, we incorporate this into the price because we want a chunk of this margin.
Yeah. Could you put a percentage on that maybe to see how many buyers are interested in repurposing?
Well, can just give you an example of past transaction, but, you know, if I look at, two assets, we have divested, during the second semester last year, we had 15 bidders, on one and 17 on the others. Both of them were to be repurposed, as a private apartment.
Okay. Another one I had was on the German operators, Convivo and Curata. I was wondering if you are still collecting any rents or chunk of rents and, if not, if you have banking guarantees and for how many months?
Well, basically, you know, the, we already took, for 2022, a write down of EUR 1 million. For 2023, you know, we have budgeted some months without rents, but discussion are moving well. It's, we took a quite conservative approach in our budget on this.
Okay. Clear. And then-
I remember that it's a very, very small, you know, percentage of our global portfolio.
Okay. Another one I had is on the operating margin. It went down a little bit in 2020, presumably due to a increase in personal expenses and inflation. How do you see 2023?
Well, when, you know, I will basically pulse our operators, as I said, before, I hear a big relief from them that they can increase their daily rate, because I think, it was. You know, in certain countries, there is even a question of a special identification for energy costs. That's something that also may happen. Basically, you feel that the first priority of the operators, as it was before the COVID is to find skilled staff people.
Cost is of course something to manage, but as long as they can pass on the increase to their customer by increasing their daily rate, which, you know, most of the countries showed a lot of flexibility on that, the biggest priorities remain to find skilled people. Because let's face it, the COVID period has not been a very attractive marketing tool to have people joining the healthcare industry at large. You know that in hospital, having nurse and so on is also a big issue. In many hospital you have certain services that have been shut down because of the lack of personnel.
What about the margin of Cofinimmo? The operating result before portfolio? The operating margin has gone down a little bit. What do you expect in 2023?
Yeah. Now in the budget we have a higher margin than that we have shown in the press release of yesterday for 2022. Or this morning, sorry.
Okay.
An improving operating margin for Cofinimmo. Yeah.
Okay. Clear. Maybe the last one, there is oversupply in Brussels that could be diminished with Orpea leaving the market. Do you see regional clusters of oversupply in other markets?
Well, I think the Brussels is, has to do a lot with, a plateau in demography. We're basically in 10 years from now, you will see again, a need for more beds. We don't have in all geographies where we are present today, a comparable scenario that, we see with, you know, a oversupply of beds.
Okay. Thank you. No further questions.
Thank you. We will take the last question from line Frédéric Renard from Kepler Cheuvreux. The line is open now, please go ahead.
Hello, good morning. I have only one question following all the questions that have been raised so far. Just on the outlook 2023, I'm wondering your current cost of debt is an average 1.2%. You have a high share of commercial papers in the market. I'm just wondering, where do you see that cost evolving, entering to 2023? What do you have for your budget? Thank you.
It's, I think as Jean hinted earlier, it's a bit higher than, 1.2%, but not that much. We're still well below 2%.
Still well below 2%?
Yes.
Okay, perfect. That's it for me.
Thank you. There's no further question at this time.
Okay. Anyway, I think that most of you know us pretty well, so don't hesitate to reach us should you need any further clarification. In the meantime, thank you for your attention and, you know, always happy to exchange with you about your views, also, on the market or on the industry. Thank you.
Thank you for joining today's call. You may now disconnect.