Good morning, everybody. Welcome to our heads-up on the Q3 results. Indeed, I think I can start by saying it's going good with WDP and our beloved logistics real estate sector, even in this turbulent macroeconomic environment with rising interest rates. I think I can say, and we all, that we delivered a perfect report operationally and financially. Operationally, the highest occupancy rate ever, combined with a permanent delivery of around 100,000 square meters of new pre-let developments every quarter. All of this, driven by a sustainable broad demand for warehouse space from inbound industry over outbound omnichannel to the more cyclical demand. The supply chain, even under pressure, stays crucial.
Financially, all of this is supported by a strong and robust balance sheet with a loan-to-value below 40% and a net debt-to-EBITDA of 8.5x, consisting of long-term credit facilities and long-term hedges, combined with a very strong liquidity covering 24 months of committed CapEx and debt maturities. This generates altogether an inflation-proof cash- flow- hedged against rising interest rates. Looking forward, I think we can say more and more it becomes clear to us that the plus from our growth plan is really becoming strategic. The power of the existing portfolio and WDP Energy. For example, a new letting in Lokeren last week of an old printing house into a new strategic future-proof industry house with Stow Robotics, a warehouse automation company with an experience center, an R&D center, a production site, and adjacent offices.
Also WDP Energy, our new business line by which we will first enlarge our green electricity production capacity in order to optimize it afterwards and to optimize the use of it in a second phase, like for example, with our green mobility hubs. We are fully on track for our short-term EPS of 1.25 for this year, and even more important, the 1.5 for 2025. This is for me a short heads-up on our results. Before giving the word to you for Q&A, I think we will first elaborate by ourselves a little bit deeper on some key investor topics. Like, first of all, the market and the developments in the market, the profitability of our new investments, then the inflation-proof cash- flow- profile, our balance sheet, and then, of course, the strong portfolio and tenant basis.
The markets. What do we see on the markets? Well, I think we can say that we still see a really very strong demand over the sectors, and for existing and new buildings. It is indeed not only focused anymore on the outbound omni-channel. There, let's say, there we have seen enormous investments during COVID, and I think those investments normalized. For example, there are still a lot of investments in food e-commerce. On the other hand, since the end of Corona, we added at the inbound side all kind of structural strategic demand from, for example, industry companies who are really thinking about strategic stocks. The globalization has come to an end, and we speak about continentalization for the moment, and therefore, people need stocks that they can guarantee delivery to their clients. People are thinking reshoring, stay-shoring.
Their strategic thoughts makes also the supply chain crucial. Now, let's say, at the start of the recession, we also get extra demand due to overstock and due to the more cyclical driven demand. Normally, let's say, our warehouses are running full during a crisis, but now they are already full before a recession. On the other hand, we also see that, and we think that some companies who are really thinking about strategic processes and strategic supply chain products and investments, that they could, let's say, think a little bit longer and postpone a bit and think longer about their investments and that specific strategic big investments could take a little bit longer during due to the recession.
Globally, we have to say that the demand is still there, and that's the basis of our business. Concerning profitability, that is indeed, let's say, it was one of the more challenging points of the last months. First of all, we had an increase of the cost of new products, the construction costs. Thereafter, an explosion in Q1 and Q2, there we see now a stabilization, and we can get fixed prices again at a high- level. We feel competition again, and we feel that the pipeline of construction firms comes down. On the other hand, indeed, our cost of capital has increased, and so we have to go with that. That is also what we do. We monitor it permanently.
Yes, we started in our strategic plan. There we said, we think that we can get 5% and 7% on our own pre-let developments, 5% in Western Europe, 7% in Romania. Let's say, step by step, we had to adapt those profitability requirements based on the macroeconomic evolution and the rising cost of capital. We went to 5% plus 7% indexed as from signing, then 0.5% higher. Let's say, today we are at 6% in Western Europe, 8% in Romania, also indexed as from signing. Also, let's say, we adapt our investments, and we look to the most profitable investments.
There's also one of those extra investments we can do within the existing portfolio are the investments of solar panels, which has a higher profitability since we have a higher IRR and yield on cost. Mick, up to you to explain a little bit more about the balance sheet.
Yeah. First of all, on the inflation-linked cash- flow-p rofile. There are two components are obviously important, our rental income, and our cost base, mainly at the interest cost. Our rental income is inflation-linked, and that's we can show also in the like-for-like rental growth, which is increasing during the year, of course, because of the acceleration of the inflation and also due to the timing effect. For example, like-for-like in Q1 was 2%, Q2, 4%, Q3, 4.5%. Q4 will be a bit more than 5%. In general, the like-for-like rental growth of what you saw in the nine months of 3.5% we should end the year at around 4%.
What's more important is that we will have an average inflation throughout our countries and portfolio of 8%, of which this year we can contractually capture 6.5%, and so 4% due to timing effects, we will show in the results in 2022. I think there at these levels of inflation, we can capture 80% of the inflation to the indexation-linked contracts with our tenants. The revenues are well- protected. Also important is that ERVs are rising as well. We believe it's structurally capturing that inflation.
On the cost side, well, our debt is 86% hedged, and that will even grow further towards year-end with a long duration of average 7 years, in line with the end duration of the leases. We have a good asset liability match. Also in the first 4 or 5 years, we have only limited maturities in the hedges. We can feed through most of the indexation of the rental contracts through to the bottom- line, and we'll only have a minimal impact, organically speaking, on our cost of debt due to rising rates. That's first on the inflation-linked cash- flow- profile. Also on balance sheet strength and liquidity, which is critical in an uncertain macroeconomic environment.
There, LTV at 39% should, based on the current portfolio values, decline towards 37%-38% in Q4. net debt to EBITDA 8.5 should also improve towards year-end due to mainly the cash generation in Q4. Liquidity is strong. You know that, liquidity is equally important to us than the balance sheet. You can have a strong balance sheet, but you need to have a liquid balance sheet. There we can, like Joost mentioned, cover all our committed investments and all the refinancings for the next 24 months, and that's obviously excluding any potential impact which will come, of course, from the cash- flow- generation and scrip dividends and also excluding any refinancing of loans.
For 2023, we foresee no issues because we have already credit-approved term sheets for all the three financings for 2023. This should be like we do normally be finalized by year-end. On portfolio values, what the valuers did in the first nine months and then specifically in Q3, you saw for the first nine months we reflected a value uplift of the portfolio of +4%. The main driver was obviously the rise in estimated rental values of +6%. What happened in Q1 and Q2, they reflected 2% increase in ERV, and that's likewise, they increased the values with 2% in Q1 and Q2.
In Q3 what they did is they reflected another ERV rise quarter-over-quarter of 2%, but they built in then some buffers by slightly increasing the yields and keeping values stable over the quarter. As a result, because of our income that is growing due to indexation, the net initial yield increased from 4.6% to 4.7% over the quarter. We can also point out towards the still low- value per m2 because the global portfolio, so that is a blended figure, is still valued at below 1,000 EUR per m2, fair value at 950 exactly, and that is roughly in line with where we see the replacement cost of the portfolio.
Last point, a question which also arose during our many conversations with investors and analysts. Okay, what about your tenant base in a recessionary environment? Well, clients are generally in good shape, paying well. Yes, supply chain costs in general are rising. But do note that the biggest rise is coming from transport and labor. How we see it, we made, like we did in COVID times, an extensive analysis of our client base. For us, the key risks are in sectors that are sensitive to recession or have high energy costs and limited pricing power in combination with a weaker financial profile.
Now, most of the tenants are really large enterprises, so if you would combine these data, weaker financial profile and then either recession sensitive or sensitive to high energy prices, you would end up with around 5% as being screened on for watchlist as high- risk. It's not that they are not paying today. No, they are paying. These are, let's say, how we identify the risks in our portfolio. It's mainly in the SME segment. For example, two companies that were on our list and where we saw some difficulties in their operations and starting difficulties for payments, one in Romania and one in France, we proactively changed them and terminated the contract and released the space.
Also one of our bigger clients made a very interesting comment that they indicated that if there would be smaller companies on good logistics locations falling bankrupt, that he would be ready to take them over. Why? Because of their personnel, because there is still for them a shortage in labor. I think that these are the main investor topics we would like to address, and we are now fully open to the Q&A. You can either raise hand or put your question in the chat box, and Alexander will be our moderator.
Yes. First question is from Wim Lewi from KBC.
Wim?
Good morning. Thanks for taking my question. I had a question on the Cedimo deal in Tournai. There you announced it fully as an acquisition. Can you give maybe a couple of updates? First, just how you feel about the strategic logic. What about the yield? Is that in line with kind of the guidance overall for acquisitions? And then lastly, how should we account for that? Because there's, I think, still a part outstanding as a contribution in kind.
Yeah. First of all, Wim, like mentioned in the press release, I think it's a strategic one for us, since indeed, let's say he fits perfectly in our strategic plan and in our g eographies. Let's say in Wallonia, there are three main logistics hotspots. Liège, Charleroi, and Tournai. Let's say we were active in Liège and Charleroi, but not in Tournai. Tournai is at a turning point between the Lille area, Nord-Pas-de-Calais, the Flanders area, and the Walloon area. It's the crossroad of three strategic regions of WDP, and it's really in the corner of five highways. Therefore, let's say we were not active there. There we could, let's say, not buy one building, but different buildings from small buildings to big buildings. That was, let's say, we could buy a portfolio on that important hotspot. That was, let's say, the strategic rationale on the yield.
Yeah, there indeed it is, let's say it is a contract, 12-year fixed of around 4%. The deal we made, and indeed we could do it by a contribution in kind. The first part is done in the last week of September. The second part, when the existing construction will be finalized and some leases come to an end, then we do the second part of the contribution before the year end.
Yeah. Also, it's the 4% yield, initial yield is a fully indexed 12-year contract, triple net, which was at that moment fully in line with the implied yields on WDP. We can also improve our yields by, let's say, around 80 basis points by adding solar panels on the roof. The second part of the EUR 120 million deal, so about EUR 53 million, is scheduled to be finalized through, again, a contribution in kind before the end of the year, as is already publicly announced.
Okay. Thanks. Maybe just last one on that. Is that going forward, do you see more kind of these contribution in kind deals also because they're beneficial to the debt ratio? Could that be like a strategic option for you?
It's not a new strategic option, Wim. We do it already 20 years, and I think we did every year at least one contribution in kind over the years. Yes, indeed, we used it, and we will stay using it. It are interesting deals and way of growing by. Yeah, it's the best moment to add new capital as indeed by direct acquisition. For us, it's really a good way to grow further.
Yeah. It's a tool in the toolbox to add.
Yeah.
to add to your equity with add-on equity and with immediately yielding assets against that. If we can do it, we will continue to do it. Absolutely.
Okay. Well, thanks. I'm gonna clear the floor. See there's many questions. Thanks for answering my question.
Welcome.
Thank you, Wim. Another question is from Pieter Runneboom from Kempen.
Yes. Thanks for this presentation. My first question is on the marginal cost of debt. Could you maybe give some additional color here, especially maybe on the difference between bonds, bank debt and duration?
The swap rate is across the duration across the curve between 1 and 2 and 10 years. That's around 3.20. That would take us to 4.5%-5%, depending on the instrument.
Okay. That's clear. Thanks. On the double-digit indexation letters, I believe you've been sending them out to tenants now for a couple of months, especially in the Netherlands. How do tenants respond to this?
I think, yeah, they are. Let's say it's contractual. It is contractually foreseen. Let's say most of them accept them. Some of them, of course, are discussing or are trying to negotiate them. Let's say there we are helped by the rising ERVs around the corner. The alternative, let's say, is going away or looking around, are my rents too high? They have to see that since most of our rents are, let's say, not at the highest levels, that they. If they look around and if they look at the broker reports that they're even indexed, that they still have lower rents than the market rent.
Yeah. That is fundamentally different versus, for example, 10 years ago, that now ERVs are rising and also there is no availability, because in all our markets, geographical markets, the vacancy rate is below, well below 5% and there are no immediate availabilities. Moving is also a big risk, not only because of CapEx, et cetera, but also because you would lose your labor force. That's a comment often made by our clients. The buildings are really strategic.
Okay. That's clear.
It is clear, Pieter, that the entire cost of the supply chain has risen substantially and that will eat into margins of our companies. It's a general
General thing, yeah.
Even there, rents and the total rent is still below 10%.
Below.
The most important elements of the supply chain are still transport costs with around 50% and labor costs. I think those two together is still-
60%-70%.
60%-70% of the total supply chain cost.
Yeah. Okay, that's good. The last one from my side. I believe you organized the procurement for energy for circa 35% of the portfolio. Are there any issues here regarding passing on these higher energy costs to tenants?
Yeah. Because your question is because we procure for around 35%? Yeah, yeah.
Yeah.
If they have to do it themselves, it's the same cost, this market-based. We share that with our tenants. We organize a tender. We also do it with the external advice from consultants to achieve the best possible price. The reality is that during COVID, we signed some longer-term contracts to protect our clients from rising or to benefit from the low prices at that moment. I think now they have expired. Most companies, even the most advanced companies within our portfolio, who procure themselves and are really advanced with energy procurement teams, in 2023, most of their hedges on energy or fixed-term contracts, fixed price contracts will expire.
It's a general issue for everybody, also for us all as individuals. We will have to pay the price, and that's the price of the war we will all pay.
Okay, thanks. That's all from my side.
Thank you, Pieter. Frédéric from Kepler?
Yes. Hi, good morning. Thank you for the call and the specific topics you mentioned. I have a few questions on my side. Just on the electricity prices. Just wanted to know how the soaring electricity prices has an impact on your cash-f low today and maybe for next year. How should we look at that?
What you see as, we will now have this year over EUR 20 million of income from solar panels. Of that income from solar panels, around 70% is based on the fixed price green energy certificates we receive. There will be no impact. One third of that is linked to energy prices. Yes, these energy prices are rising. That will have an effect of a couple million EUR. Depending on where and how we sell, it is a net plus.
For example, in the Netherlands, when your electricity price is rising and you sell at a higher electricity price to the tenant or to the grid, then your green certificate price is declining. For you to be able to generate a stable return. Yes, we have. This year, if you would make the analogy with like-for-like rental growth, then the rising electricity price this year adds a 1%, the equivalent of a 1% like-for-like rental income rise. You see what I mean?
Um.
The impact of the
No.
The impact of rising electricity prices this year in our solar income has the effect of 1% like rental growth increase.
Out of the 2.5
a couple million EUR.
Yeah, yeah. No.
Not included in the 3.5-
No, no. Yeah, yeah. Not included. Yeah, yeah.
The equivalent of 1% this year. Yeah. In the future we will need to see obviously how electricity prices will further evolve.
It's not in the like-for-like, huh?
It's not in the like-for-like. Just to make the comparison about what the effect is.
Yeah.
Okay. It's not a lot actually, as you mentioned. Maybe just to give some and come back on the question of Pieter on the marginal cost of debt, which obviously as you mentioned, would be between 4.5% and 5%. Is it something you have taken into account for 2023, 2024 and 2025?
Well.
Have you taken less in your budget?
Sorry?
Did you take less, assuming that rates will go to more lower- level?
What we say about the business plan, the bit in the growth plan, we had completely different assumptions. You know that we had a much lower cost of capital foreseen initially in our business plan, and we had development yields of 5% and 7% like Joost explained. We had also much lower inflation foreseen. We had only as from 2023, 2% foreseen. In 2022, we had only 3.5%. You see. What has happened, we are working towards the profitability targets in our growth plan. The €1.50 EPRA earnings per share. Yes, today it has become more challenging to grow profitably through new investments, which is why we say we need to be more selective and we need to preserve our profitability.
That means calibrate our investment returns in function of the macroeconomic environment and meaning also the increased marginal cost of capital. We need to calibrate our investments with that for them to generate a solid property return attuned with market reality and for them to generate earnings per share growth. Now that has become more challenging, and we need to focus more on profit even more than ever. I know we are sensitive to that on profitability, but the good thing is, like Joost explained, is that growing externally through new investments has become more challenging. On the other hand, we have more internal growth opportunities because of, like, the example made by Joost on, for the leasing to store, for example. That's also internal growth in the portfolio.
You have a higher indexation level, and we also try to accelerate our deployment of our energy as a business strategy, and that is how we cope. In general, that's all these parameters, they have changed. Some go in the plus, some are minus, but the outcome is that we work still and believe still in our ability to generate the €1.50 in 2025. There is no single path towards it. There are also different paths towards the €1.50. We need to cope indeed with that new cost of capital. We still have one pre-hedging instrument available. If we can still do a debt transaction before year-end, we can use it. Otherwise, as of next year, it will be the new parameters like you just highlighted.
Mm-hmm.
The existing cost of debt is very well- protected.
Okay. Thank you. Maybe last question on that. Aren't you afraid that at some point next year when you will have discussion on indexation and, well, with the recession, most of the tenants will be hit on the top- line, that they would say, "Look, we cannot do it anymore. It's becoming too high." There is a risk that at the end of the day, maybe the inflation link that you have will be a bit lower. In a recession, I mean, inflation in a recession becoming too
Let's say it is more, let's say, a price discussion about total price. Yes, we can have price discussions. Yes, clients can come to us to ask a reduction on the price because, yeah, indexation is there. Yeah, then it's about the profitability of their way of working. Let's say this can happen every moment. Yeah, like, the small example this summer, in France, in northern France, in Roncq, yeah, we had a client who could not pay his total warehouse invoice anymore. Then we said, "Okay, let's stop." We stopped the contract. We, let's say, re-rented it 15% higher than with him. Yeah, that we will see, and that can be a general discussion but not an indexed discussion.
Yeah. I think.
I think discussion about energy and transport and labor are much more important for them in the total.
Yeah. You can have these type of discussions, of course, especially in this type of environment. We will also always go into a commercial discussion that it is ensured that it is market-based so that we use the correct market values. We have also contracts in place, of course, but everything needs to be market-based. There we are also, like Joost explained, supported by rising ERVs and limited availability.
Okay. Maybe a very last one, and Thomas, for just yes or no. If you would be doing the same deal that you did in Tournai, Doornik, today, would you do it at the same price?
We would do it again with a contribution in kind.
Okay. Thank you.
The next question, from Steven from ODDO.
Hi. Thank you for taking my question, of course. I have some questions to grasp where the market yields are going. Maybe one, what yields would you now be willing to acquire prime assets today in Western Europe and Romania, given the funding cost? Maybe second, also, where do you see pricing for single assets or portfolios go in terms of maybe that you're witnessing today? Third, more on the-
Just, Steven, can we take them one by one because we're-
Yeah. Sorry.
I think first of all, today there is illiquidity. There is no market. Let's say the price in theory between a willing seller and a willing buyer, the spread is too big, and there is no market. The market is waiting for, I think, first of all, stabilizing interest rates so that the cost of capital becomes clear. Therefore, today, let's say there is no market, and we don't see any deals in the market.
It will depend on inflation and the rate cycle. There the markets will and that's what you all know. The markets will have to find a new equilibrium, but it cannot find it because there is a too high discrepancy, and everybody's looking about or trying to assess what the new normal environment or stabilized environment will be. Then your second question? Yeah, because we didn't hear.
It was about portfolios.
Yeah. If you will, but it's also answered because I was wondering if there are any tenders or anything today and what pricing you see there. Well, if there's nothing, yeah, there's probably no pricing. Maybe one additional question on the yield. Let's say now, interest rates stabilize. You already mentioned the current cost of debt. What kind of yields are you willing to pay also with the current inflationary environment? Let's say there's a 10%-
That's really depending on deal by deal. Let's say, what is the rental level? Is it below market rents? Is it at market rents? Above market rents? Is there still an extension potential? Can we put solar panels on the roof? What is the location?
Mm-hmm.
What is the quality of the building? Let's say there is never just one yield.
Mm-hmm
... also depending on the regions and if an opportunity to get into a region, so there is no one yield that we use and is really depending deal by deal.
Okay. Ask differently, the increase in the cost of funding that we're seeing, would you add debt to the average yield or half of that, or is that too simplistic?
Well, we look always to an investment opportunity from a real estate point. Of course, let's say I buy it and then I give it to Mick, and he will make his financial then put his equity and debt against it. We don't calculate in a deal I can put debt or.
We try to have, let's say, for each individual investments we make, whether an acquisition or a development project, we want to generate a long-term fundamental property return. That is to have a decent initial yield and also have capital preservation, do not lose money, and have a nice IRR over a real estate cycle. That will really depend on the land value, reusability, the way we can enter it, is it an off-market deal, et cetera. The aggregate of that, first of all, on each individual project, be a fundamental long-term property return. Secondly, the aggregate should generate earnings per share growth.
Yeah.
In function of our cost of capital, of course.
Yeah. Okay. Clear. One last question on now the market is dead, but I can imagine maybe there are some distressed sellers somewhere in the market. Can you elaborate if you are aware that maybe some parties have some issues and then we can expect maybe some initial deals in Q4, or is that too early?
It's too early, I think. If you know distressed sellers, you can send them to us. We are always prepared to look at them. For the moment, we don't see them yet.
Okay. Clear. Thank you.
The next question is coming from Alvaro from Exane.
Hello, can you hear me well?
Yes, yes, Alvaro.
Just few questions on my side. Back to cost of debt. Which are the next refinancing you are currently working on? Could you share, like, examples, if it is in Germany, Romania, in terms of price, and what conditions lenders are giving you?
For the financing in general, whether it is debt or equity, we raise all money at the level of the listed entity at the level of the group. There, in terms of refinancings, the refinancings we have been working on are the refinancings for 2023, for which we have now all credit approved the term sheet, and there, the price indication is not far from where we were. It's only a limited increase of 10, 15 basis points on these bank loans. We should see, there the refinancing for 2023 will be done by the end of the year with a limited increase.
Then further for new financing, the new financings, bank financings we added. That's really new liquidity that is available. That's bank financing that was added, and that was also in tune with what we have done in the past. Obviously, there is still bank margins are also creeping up a bit more slowly than the bond market is completely different. There has been, as you know, a major sell-off and the spreads are there. There is a big discrepancy, but there is still funding available for us, and we try to optimize it in the best possible way. But for the refinancing, there is no issue, and that will be for 2023 done by the end of the year.
I'm trying to understand what kind of increase we are gonna see. You were saying that the refinancing of 2022, it has been just a couple of basis points above your current cost of debt. Is that because that is shortened debt?
That's in terms of the margin. Yeah, that's in terms of the margin. That's for the conditions. If you take, 2022 is already done. 2023 will be done at limited cost increase, and then that's on the margin, and then on the cost, on the EURIBOR itself, because these loans are at EURIBOR plus credit spread. The one is unhedged today, and we'll see some cost increase, but we are hedged for 86%, and it will even increase further towards the end.
We will only see a very limited organic increase in our cost of funding, let's say max 25 basis points, which we will see as a rise due to the rise in EURIBOR and a very limited increase in the rise in credit spread. Organically should be quite.
Same around 2%.
Okay. On 2024, do you have a forecast of how your interest coverage ratio would look like with the current quotes you are getting from your banks?
It will still look in line with what we have today, because, like I mentioned, our cost of funding will not rise organically a lot. In the meantime, our income is also rising organically due to the indexation.
Okay. Around 5 times more or less.
Yeah, yeah.
Okay. Next, you were saying that growing externally is challenging. Can we assume EUR 400 million of new investments in 2023?
That's what we are trying to say, that the business plan took into consideration EUR 500 million of volume per year. Now we say, well, it is more difficult to forecast that, and we want to emphasize our focus on the EUR 1.50 in 2025. That is the most important thing. If we can do profitable investments for EUR 400 million, then we can do them. They need to be profitable and in tune-
Yeah.
with our return hurdles and marginal cost of capital.
No growth for growth. Investing EUR 500 million will not be difficult, but we want to invest profitably, and we want to do profitable growth. We also think that the existing portfolio and our solar panels will be very contributing.
Okay, last two on my side. Scrip dividend, you will offer it next year. If the stock is trading below NTA, I mean, materially below NTA, you will still offer it, or you will try to pay a full cash dividend, even if it can impact a little bit your loan-to-value and some credit metrics.
We don't know.
The philosophy is that.
Yeah.
We continue to offer recurring optional dividends to our shareholders like we've been doing for the last 10 years. That is the philosophy.
Okay. Well, the last one on growth, the 6% ERV growth more or less you are communicating to the market, it seems that is very much driven by indexation. If we strip out that impact, yeah, how would your like-for-like rental growth look like? I mean, until we had this spike in inflation, realistically, you didn't have that much pricing power. My concern is that if the portfolio at some point can end being a little bit over-rented.
The portfolio, I understand what you're trying to say, but let me just give you a few metrics. What we told at the start of the year, and you had, let's say, ERVs, let's say or one year ago, you had ERVs slightly above our contractual rents. We said one year ago, we believe that now and due to the rising tension in the markets with rising scarcity, ERVs should start to rise significantly. We already see it in the market, but it's not yet reflected in the ERVs based on which our portfolio is valued. In the meantime, over the last year, I think our ERVs have risen by around 10% in the last year.
If we would have not had inflation, we always said to you, because there was a question of the investment community, how fast can you then capture the spreads between contractual rents and ERVs you see on the market? It would take a longer business cycle to capture that because you would every time a contract, you could only renegotiate with the tenants when the contract would come to an end. Not at a break, but at the end. You have around 10% maturing per year. It will take a long cycle and a lot of renegotiations to capture that.
Now the good thing is that we have inflation across the entire portfolio immediately rising into our contractual rents. Now, based on what we currently have published, our ERVs are still 5%-6% above our contractual rents today.
Okay. Thank you very much.
Thank you.
Ina from Petercam.
Yes. Good morning, everyone, and thank you for the presentation. First, if I may come back on the question of Alvaro regarding the ERV. Broadly speaking, you would say across the board, the portfolio is still 5%-6% under rented right now, right?
Exactly. Exactly.
Okay. Just also more of a question on your projects under development. You currently quote a yield of 6%, mixed. What is the development yield split between Western Europe and Romania?
It's in the presentation. It's 5.8% in Benelux and 7.3% in Romania.
What is it in Benelux? Sorry.
5.8
5.8.
7.3% in Romania.
It's on page 17, Ina.
Thanks. Yeah. Just thinking about what you've been saying on moving the development yields from 5%-6%, I appreciate that. This is also a sizable step. If I purely take into account your land position, how would you really see that evolving? Because I know Joost gave a couple of examples on the energy top-up, for example, the 80 basis points that you're able to secure. How would you see that moving around in terms of your strategy? Because I think it's still fair to say that Benelux is a very competitive market in terms of the margins have been coming down a lot in the past years. Would that have an impact on your geographical strategy, or would you really focus on kind of the opportunistic add-ons such as energy and where you would be able to secure that 6% development yield in Western Europe?
I think the world or the competition will also change. Let's say we go for profitability above quantity. I think there, and if we can do, let's say now more and faster, bringing further here for our investments in the solar panels, then we will do it. We look to profitability, and we'll see where we can get the profitability. Let's say we won't change our strategy, and we keep with, let's say, a core Western European investor with an add-on in Romania. Romania stays or will stay today below the 20% as foreseen in our strategic plan.
Okay. Maybe one additional question on the market, just to get a little bit of an idea of what you're seeing in terms of speculative developments and if those have started to come down already. I appreciate that was always more the case in the Netherlands than in Belgium. Effectively, how you see the current supply dynamics in terms of the upcoming stock in the markets where you operate versus the demand pickup.
Well, indeed, in Belgium, there are almost no speculative developments. In the Netherlands, there were some more speculative developments. For the moment there, we see also our, let's say, colleagues, the developers hesitating and looking and seeing what they will do, depending on where the market goes. The demand stays there. I think this is the most important, demand stays there. For, yeah, on the supply side, people are looking around or waiting a little bit, before just moving and doing like there is like nothing changed.
Across other markets, Joost, for example, also in looking at Romania, France, Germany.
Romania, there also no changes. I think there, let's say there is only one who is really developing speculatively. That's CTP, and he always did. Now you have to ask him if he still continues. I don't know. He is doing speculative developments as one of the only in the market. I don't see him do more or I think it's a little bit the same, but that you have to ask to CTP.
Okay. Last question on the commitment of new development projects. In terms of your minimum pre-let that you're looking for, does it remain unchanged? Previously, you were always at around 70%, if I recall correctly.
No. Let's say we normally buy land speculatively, and then we wait for a project, and we prepare a building permit, and we start the project when we have a tenant. Just sometimes due to, let's say, efficiency reasons or technical reasons, when you have a building of 25,000 square meters, like for example, the four in Luxembourg, and when you rent 10 or 15,000 square meters, you have to build the whole building, because otherwise it's too costly to restart it. Let's say we have. Today, we have no intention for any speculative developments just except when it is really technically needed for a part of it. Our pre-let developments were always, I would say, at least 90% of the total package. Much more than the seventy.
We have always been at the-
Yeah, the standard is 100.
Yeah.
Unless there is a specific reason for building efficiency most of the time, for already completing the entire building. That is actually the philosophy.
Understood. Thank you.
Thank you, Ina. Francesca from ING?
Yes. Hello. Good morning, everybody. Thanks for taking my question. On the loan-to-value, you guided for a 37%-38% loan-to-value by year-end, which I see as very safe. Considering the current environment, which is the loan-to-value level that you would feel comfortable not exceeding? Is still this in the range of 45%, or we can say it's closer to 40%?
We are happy currently where it is, and we have today and where it will be and that it will be around 37%-38%. We have also already made a public statement that we will keep regardless of what happens, keep it structurally across all cycles at all times below 50%. We will. Our overarching metric for the debt is the net debt to EBITDA, which is around 8x by year-end. That is the reason also why we today have a low LTV because we did not leverage upon portfolio revaluations.
That's fine. A final question from Andreas Brock from Coeli.
Hi. Thank you. I just wanna change focus for a second there. Just take us to ESG. I know you haven't signed UN Global Compact. We still would love for you to do that. We're very happy about your Science Based Targets. I was just wondering, you know, on the Scope 1, Scope 2, when it comes to reducing the CO2 emissions. That one exactly. The 50% energy consumption in corporate offices, and, you know, also corporate. Can we just talk about that in practice? How are you gonna go about doing that? We love it. We just wanna know how you, how you're gonna do it.
Alexander? Alexander.
Yeah. You mean Scope 1 and 2?
Yeah.
The science-based targets which for Scope 1 and 2. Well, we have invested most of the energy consumption obviously is at the headquarters. Here at the headquarters, we have invested in the building EUR 1.5 million in decarbonizing it. We cut it off from the diesel and the gas, because historically it was an older building, and it was fully upgraded and renovated. We installed geothermal installations with heat pumps. It needs electricity to power it, and the electricity is sourced with guarantees of origin from green electricity. This building has been fully decarbonized.
For the older offices we are moving towards, let's say we have moved towards lower- carbon offices, which are based on district heating. We took that into consideration in the selection of the offices for the Netherlands and Romania. We will need to further focus on reducing the footprint of our car park, for which we will do gradually. We ask from this year that we only allow in the leasing contracts for the cars of our personnel, of our colleagues, only a minimum hybrid and if possible, electric.
We'll go further up to full electric afterwards. Important is that it is less than 1% of the total footprint, because we, let's say, have only three small offices and 100 cars, that's nothing compared to our 300,000.
We try to walk the talk and audit ourselves, but the most important thing and challenge will be to do it in our portfolio, within the portfolio, and also for the procurement of the materials in the new developments. We are working on this, but this is gradual, of course. We are, let's say, we have already made serious steps in energy and sustainability, but we are also hiring new people to do so because it's a tremendous amount of work. We will continue to invest in that. That's why we have also a dedicated team and substantial new hirings to realize that.
Wonderful. Thank you. You know, we sold basically all real estate investments last year, and we just kept one company, and that's you guys. You know, just, you know, it's the only real estate stock I can own in the world. We are very happy that you also take ESG very seriously. Thank you so much.
Thank you very much.
Thank you very much.
Thank you.
Thanks. At this time, this concludes our Q&A. I'd like to turn the call back to Joost for any concluding remarks.
Perfectly in time, within one hour, eleven o'clock. Thank you all for listening and all your good questions. We hope we give you the answers you wanted to hear. We hope to see you soon again, live. In the meantime, let's say we are working further to all our strategic profitable plans. Thank you all, and see you soon.
Thank you.
Thank you.
Thanks. Bye.