Let's restart then. Again, excuses for the delay. I sta rted by saying that indeed, what else can we do, between the publication, the end of January, and the approval next week of our full year results of 2022? Indeed, just confirming this message. That's the recurring moral duty of Q1. Indeed, operationally, we can say that market fundamentals stays very strong, with a healthy demand for warehouse space in combination with a lack of new supply. The supply chain stays crucial for every industry, even in a more challenging macroeconomic environment. As mentioned during 2022, you can see indexation growing into our top line with the normal contractual delays, which gives us today very nice like-for-like rental growth of 6.6%.
Above this, the potential for further growth is still in with our contractual rents still 8% lower than our ERVs. Everybody has to accept this new reality. Higher prices, less new supply, and this takes time in decision making for our clients and for the business cases. No worry, meanwhile, we can invest further in the rollout of our PV program in order to be able to implement our Energy services to our clients on all our existing and new sites. Those very good operational metrics are indeed also supported by our balance sheet. With a fully hedged and liquid balance sheet with a loan-to-value of only 36% and a net debt to EBITDA of 7%.
Even when yields come down a bit, our net initial yield in Western Europe is already at 4.7% and in Romania above 7%. Even when it still comes down a bit, we can absorb it. We are ready for markets to reopen. We are ready and we stay ready for the new reality, and in the meantime, we take care of our internal value creation. Indeed, we had not the idea of going through the presentation since it is, let's say, all clear. We would like to go to Q&A. Now that we can hear each other, it will be more easy, and we are open for your questions.
The first questions already coming from Frederik from Berenberg.
Yes. Good morning. I had already [Michael] on the line this morning, but a few follow-up question, maybe. Can you comment a bit on the search for land in the current environment? Are you still something you are tackling? Do you see some very sharp repricing in the land bank across Europe? Any word on that? Thank you.
No, the land stays very scarce, Frederik. I would not say that land prices come down. On the contrary, we have, let's say, if there is sometimes, a piece of land for sale or there is a tender, like for example, there was in deal and, it was in, yeah, it was in deal in Q1, well, then prices stayed very high, and it was, let's say, very difficult to get land. The new land, the search for land stays there, and if we can buy land at, let's say, at the right price, we will absolutely do it. That stays very difficult, and we don't see any prices come down, of land, on the contrary.
Won't you expect the price to come down a bit considering the high cost of capital today? It will be logical after a search.
Yeah.
over the last year.
let's say, what I think market prices of land will not come down, because there are, let's say, there are also end users who are calculating different. If one thing changes is that, let's say, the last two or before the change of the cost of capital, I think some developers paid the land price, plus they shared a part of their development gain with the sellers of the land. They paid, let's say, land price plus a kind of a development margin, a sharing of the development margin, and that has stopped. Land prices ansich, there they stayed, and indeed, they did not came down, never, nowhere, in no places at all.
Mm-hmm.
Because, you can say it has to, but no, it's not possible because land is so scarce, and then there is always somebody, if there is something available, who can afford it. Let's say paying land price plus development margins, that stopped.
Maybe another one on bank financing. There have been obviously a lot of noises surrounding bank financing and the availability of financing in Europe. You are exposed to a lot of banks, so maybe you have a good relationship also with those banks. I wanted to know if you could comment a bit on the appetite of bank lending today in the market.
I'll let Mick answer that.
It's true that in general also, apart from the bond market which changed last year, also the banking market has changed, the credit cycle there. I think in general, when you are today a large company and in a good subsector in real estate and having good local access to your home lending banks, then you're in a good position. We don't foresee even also with our BBB+ credit rating and partner lending banks, we don't foresee any issues in the refinancing or even in finding further financing in the banking market. It's true that in general, there is a change in credit cycle, and banks are becoming more cautious.
As I said, it is, there are strong, there is a strong divergence in the countries, in the subsegments, and in the type of banks. For us, we foresee that we can still have a good access to bank financing at a decent cost.
Maybe a final one for me. I see the vacancy rate. Well, it's still very low, I fully agree. In the Netherlands, it went from 0.4% to 1.2%. If I look back until Q4 2019, it has never been that high. Well, if you know what I mean. Is there a specific reason for the increase? Do you expect vacancy rate to trend upwards or just, yeah, color a little bit for you.
Yeah. No, indeed. It's all relative. It's all relative.
Yeah.
You speak about one site of 20,000 square meters in the Netherlands. Let's say there have been one client in Belgium went bankrupt. A client of 10,000 square meters in Vilvoorde went bankrupt two weeks ago. There is one building of 20,000 square meters in the Netherlands, which becomes free now. Indeed, we are for both sides, we have... let's say we are in negotiation with different clients. Let's say we hope that we can re-rent it as soon as possible. Let's say it's not a structural trend, but indeed, we have a portfolio, yeah, of 7 million square meters, and there will always, let's say, somebody who will leave the building or who has changed or who...
Because we have a portfolio with different ages, different timings. We always have 10% to 15% contracts which are coming at renewal every year. There is always something to re-rent. There can be some, let's say, mismatching between a client leaving a building and a client entering a building, because you can always not match it perfect. There is no fundamental trend downwards or indeed, it's a normal way.
Okay. Maybe if I may, just the last one. On the 6.6% organic like-for-like, is it a percentage of that 6.6% which comes from on reletting above the latest lease contract?
Yeah. Of the 6.6% like-for-like growth in Q1, you have, the bulk is, of course, related to indexation, and 50 basis points is related to increase in occupancy rates and relettings split equally, so each 25 basis points. We got a couple of units which were relet at 10% higher rates. Yeah, as the occupancy is very high, it's limited, of course.
Okay. Thank you very much for taking my questions.
The next question is coming from Otto, from Jefferies.
For taking my question. New identified investments are only EUR 55 million, including solar. Can we expect this number to remain low for the rest of the year, and hence the external growth will be more limited in 2023 and 2024?
I think that's too early to say, yeah. It depends on, let's say, today, the market is frozen. Everybody waits, let's say, until stabilization of the interest rates, yeah. For which first we need to think. First, we need to have a view on where inflation goes. We can have a stabilization of interest rates, and which means then the cost of capital. I think markets can reopen, and people know what the cost will be, and then they can, let's say, invest knowing the cost of capital. Saying that this will continue during whole 2023 and 2024 is, I think, too long. Yeah, we'll have to wait for when the markets Comes open.
In the meantime, indeed, we continue like we mentioned in our in the last in our ABB of November, that we will, let's say, bring our Energy services investments first and that we take them now first in the meantime, and while there are less other investment opportunities. Of course, we will continue by doing, let's say, further our own developments on our land bank. And if markets open, we can also further invest. It will take a time, but saying that, it will be, let's say, the same for 2023 and 2024, that I take a long view. Let's say we think that it can be. That markets should be able to reopen at the latest in Q3 and Q4 after summer.
Okay, thank you. Can I ask another question, if possible?
Yeah.
Yeah. Do you have an update on the expected abolishment of the Flanders solar subsidies?
No news further. There is still fights in the Flemish government.
Yeah. Hi. What we can say about that is that for some of you know already this because it has been in the news flow in latest weeks. The Flemish government still aims to push through, and the Minister of Energy in Flanders still has the ambition to push this through the abolishment of the green certificate schemes starting as from 2024. Now there is a discussion within the coalition, within the government about how robust it is from a legal point of view and how much collateral damage there would be. That is the ongoing discussion. Further, we cannot comment on that, of course.
It's, let's say, actually a lot in the media because they are discussing about it right now, and they are also further finalizing and adapting in function of comments and discussions, the draft legal proposals. There is still a lot of fuss about it also within the coalition itself.
No. No decision yet.
Okay.
No final decision yet.
Okay, thank you.
The next question is from Wim Lewi from KBC Securities.
Yes. Hi. Thanks, Alexander. Good morning. My first question would be on the yield expansion. We saw that as last quarter, the Netherlands were again hardly hit, but now we see also some yield expansion appearing in Belgium, and also, I think, a bit of acceleration in Romania. Do you think that's a lagging effect so that they will catch up what happened in Holland? Are there other dynamics that could kind of make the yield expansion lower in these areas?
I think it's, let's say, the Netherlands is always been a more liquid and, let's say, a bigger and a more professional market. They are always a little bit before there. If things happen positively or negatively, they act faster. Belgium is always following. Belgium is, let's say, more a follower, because also there is, in general, more less liquidity in the markets and less players. It's Belgium is more following.
The yield was also the lowest in the Netherlands to start with.
Yeah. Indeed, the yield was the lowest in the Netherlands.
Do you have some expectation, let's say, for the remainder of the year or the first half?
Yeah. We, it's, what is happening now is in tune with what we said at the start of the year, and we reiterate that. We said that when the cost of capital moves towards 5%, then acquisition yields should be in the order of 5%. There is not a lot of liquidity today in the market. Still a lot of high bid-ask spreads, but there is still a lot of interest in our, in the logistics segment, and we have seen some first deals at 5%. With 5% acquisition yields today, you get 5% initial yields plus a robust indexed cash flow plus ERV growth potential. That's not that bad at all.
Therefore, we expect still that our initial yields for Western Europe move from 4.7%-5%. Also that, on the other side of the equation, that the ERVs continue to grow further. That's effect what you have seen in Q1.
Okay. All right, thanks. Just a small follow-on on your earlier comments that you're waiting for the market to reopen, and then you talk about own developments. Can you say anything about potential asset sales in the market? More like blocks that come from real estate funds that are distressed because of refinancing and higher interest rates. Is there anything moving or do you see like?
Not yet.
Okay. do you see a timeline on this? Is that like, is this like a couple of quarters away?
We cannot foresee when others will be distressed or not. Let's say it takes time. Real estate is a sector where it goes slow. Let's say most of, even when you are in a, in distress, the warehouses are filled, they generate cash flow. Even banks, let's say, they wait or they will see what will happen in the future, and in the meantime, they get cash flow, and they can, let's say, use that cash flow in order to pay down loans. I would say distressed, we have not seen it yet. Even when there is, when some funds have too much debt, they can pay back in the meantime with existing cash flow, yeah, because the warehouses, the occupancy rate in general of the sector is very high.
We don't see anything yet. Can that happen somewhere in the future? Yes. Not for the moment, and let's say, not the funds nor the banks are today in a distressed atmosphere about the logistics sector.
Okay. Can I summarize that if we see occupancy rates go down, that that would be a positive for you, as that would bring opportunity to buy distressed assets at lower prices, and you have the balance sheet to do it?
Yeah. I think saying or hoping that, let's say in general, then you need a real countdown of the occupancy rate, I don't think so. Because, yes, you can have it in a specific portfolio because a specific client goes, for example, bankrupt. I think bankruptcy is more, it's more likely to happen than just really a portfolio coming down in a occupancy rate. I would not hope on that. Yeah, certain funds, yeah, if they are closed funds, or if they, let's say, with high, with not enough equity and with lower ICRs, they will have to sell. Even there, banks will give them time. I would not really wait and say, "Oh, by mid of this year, there will be much more empty buildings." No, I don't think.
I think it's, we think that the trigger for somebody selling assets, and therefore not always in a distressed situation, would not be the performance of the assets, which we believe will continue to be very good, along the cycle, but it will be more like an event of liquidity, a lack of liquidity. For example, when they need to refinance at 4% or 5%, and they have assets in their books at 4% or 5%, and then they need to put in more equity or they cannot make the equation work anymore. For as long as everybody still has financing, it's being done depth, and the assets are performing well, then there is no trigger. We don't think that solvency rising LTV will here be a trigger.
That's also what we see with the banks, because the banks have other precautions on other subsegments in real estate than in logistics, for example. Then it will take some time for funds in logistics, for needing to sell, probably when there is an event of a lack of liquidity somewhere in the future. We cannot forecast that.
Okay. Yes, that makes lots of sense.
There is too much confidence in our sector from the banks. That's not good for us.
Okay, okay. Yes. Well, thanks. That makes lots of sense, and thanks for taking my questions.
Okay. Vince, the floor is yours.
Get to New Zealand.
Yes. Thank you. No, in fact, the question was already answered by Wim, and it's always the same on the project developers that are maybe in a less or maybe more stressful situation. Okay, you answered that. Thank you.
Okay. We continue with Saravana from RBC.
Hello?
Saravana from RBC.
Hello, can you hear me?
Yes.
Hi there. Hi. Morning. Thank you for taking my questions. My first is on build costs. You say that it has stabilized at a high level, but seems like some of your peers suggest build costs are actually coming down. I appreciate, you know, market mix may have an effect and what wages are still going up, although that's the case everywhere, but it would be good to have a bit more detail on the components of build cost inflation and, you know, what you're seeing that's kind of stopping it falling further for WDP.
I think building costs are, let's say, Yeah, I think for the moment we get, again, fixed prices and fixed timings, and the pipelines of the construction firms are, let's say, coming down, eh? Saying that there is today a real cost reduction, that's not the case yet. It's stable, and there are some elements where, let's say, which become cheaper, but on the other hand, there are also still elements and parts which become, which are still at a very high price. Globally stable.
Yeah. I would even add to that you are fully right. That's from a normal economic cycle thinking when you have more available capacity and reduction in order books of the construction firms and also much lower volumes in all sectors or in all subsectors, you would normally see that come down. The thing is that in the raw material prices, we get mixed signals on several components going up, other coming down. There it's a mixed view. You have just had the other part, the other half of the construction costs are wages which have gone up by +10%.
Therefore, we are seeing today, as we procure 500,000 square meters per year on average, we cannot make a statement yet that they will come down for the remainder of the year. It could be, and in normal cycle thinking you would expect it, but it's too early to tell. We don't see it on the ground yet. What could happen is that after COVID, there has been a lot of supply chain bottlenecks, and there everybody wanted to recover something which they lost during COVID, and they all increased their margin. Perhaps that can be lowered again in an economic recession, and it can have a, for us, a positive effect on pricing of construction costs, but it's still a bit too early.
Nevertheless, it will solve a lot of our headache in the profitability of the projects, of course.
Thank you. Thank you. That's good color. My second question is around the project under construction. Just wondering if the decrease quarter quarter, year-on-year purely indicative of being more selective on developments you start and, you know, the focus shifts slightly more towards solar projects. Is there a reason to expect a ramp-up in starts later in the year?
Well, it's a bit a combination. The fact that we have lower volume of EUR 25 million only for Q1 is a combination of the fact that we said we need even more focus on profitability over volume. Also Q1 is also typically the start of the year, which has automatically a lower volume, because then all projects are being more initiated for negotiation. It's typically a lower volume quarter. As Joost also explained during the beginning of the call, is that you also have the effect of the fact that. The market needs to adapt to the new reality and its current high building costs. We need to ask even higher rents and that's something that need to be still also absorbed by the market. There are projects, there are opportunities.
Our business developers are negotiating with nice projects in all countries. Also there is that not only the question of profitability, but also the question of how fast can a client in this type of uncertain environment make a decision on supply chain. That will take some time.
Yeah. No, thank you. I guess it's more about, let's say, let's take the year-on-year decrease for Q1 projects under construction and should we expect the year-on-year decrease to soften as you go through the year and it, you know, a ramp-up in that term?
We have also set at the start of this year that our growth plan through 2025, which was originally built on EUR 500 million volume in predominantly new development projects per year to achieve the EUR 1.50 EPRA earnings per share target. That there, that we would build another path towards that and with a path of lower investment volume, targeted now at EUR 250 million versus the EUR 500 million, but with a more balanced combination of external growth through developments and then also more internal growth, to indexation amongst others, and more focus on an accelerated deployment of profitable energy investments.
No, that's what we mentioned at the full year results, that the road to the 150 will be different, and more internal growth, and less external growth than, let's say, one year ago, initially foreseen.
Yeah. Yeah. Got it. Finally, from the solar investments, I can see the pipeline is 90 MW currently. How much do you expect to complete by year-end? Is that something you're able to estimate currently?
That should be half of it. Half of it.
Sorry, I missed that. Can you repeat that, please?
It should be half of it should be completed this year.
Half. Okay. Got it. Thanks.
Yeah. The other half, early next year.
Okay. Thank you.
We have two more questions in the chat. The first question is, with current indexation at 6.6% already, while we're guiding for 5% rental growth for this year, do you expect that our guidance will increase?
Yeah, we have made that analysis too. Indeed. The indexation component in our like-for-like was this quarter 6%. Do not forget that inflation, as it is projected today, is declining towards the end of the year based on the inflation expectations more towards 4% towards the end of the year. We think inflation, the indexation component, in our like-for-like will peak in Q2, and it will then come down. Yes, it could be that we end somewhere between 5% and 6% for the purely indexation component, whereas we guided for 5%, it could be that it's between 5% and 6%. Will that lead to an increase in our guidance?
No, because on the other hand, we also have the slightly negative impact from the decline in energy prices at the start of this year versus the expectations at the start of the year.
The next question is coming, regarding the CapEx, development CapEx that we guide for this year. Is it fair to assume around EUR 400 million in, 2023?
That will be more like, let's say on the pipeline, it will be EUR 300, EUR 350 plus EUR 50 million from the solar. That's in total.
We have a final question on our EPS. Is there any seasonality in our Q1 EPS when multiplying Q1 times 4, you're trending at EUR 0.11 below the full year guidance?
Oh, yeah. That's.
There is.
That's logical. There are two elements. In IFRS, in IFRIC, we need to reflect the full net charge, so also the parts we cannot recharge of the real estate tax, in Q1. That's fully reflected always in Q1. That's due to IFRIC 21. That's a seasonal effect in our Q1 results. Also note that we have the seasonal effect of the solar income, which is most pronounced in Q2 and Q3, which is less. We have less irradiation, of course, in Q1 and Q4.
You should look actually at the full year guidance as a whole, and we are perfectly on track for that full year guidance, for which you can see all the details in our annual reports, with also the details on the solar panel income.
With that said, we don't have any more questions. Awesome.
Any new last questions that popped up or in the chat or in hands? If I look around, I don't see any new hands or new questions in the chat. No. Then I think we can close it here. First of all, I'm sorry for the technical problems in the beginning, but let's say at least we were flexible that we could answer all your questions, and we are still open for further specific questions during the day and the next days of course. We can say in general that we started very well in 23. Indeed, like mentioned with the full year results, we still see the 150 as a final result, but the way to the 150 is different.
Where we had initially foreseen that it would be still driven by external growth and a preparation of internal growth and internal growth for our next plan. Dare we say that we had to change those plans, and that indeed today, the biggest part of our growth comes from internal growth. Which is of course, also very interesting and very good because it needs less CapEx and that indeed. Besides this, there is still external growth, but there today it's more we can more rely or we have to rely on internal growth and then a little bit less on external growth, but that is already what we mentioned in the full year results, that we would invest less in external growth and more in internal growth and specifically in our Energy Service.
That's the way we continue to create value for our clients and for you, our shareholders. Thank you very much and see you soon. Bye bye.
Thank you. Bye bye.
Bye bye. Thank you. Bye.