We are gathered here for our 2023 results, a year where we were able to create value again in very challenging times, and even more important, we feel confident for what lies ahead. Welcome, everybody. 2023, a year again of strong earnings growth. We were able to realize 12% earnings growth in our EPRA earnings per share, from EUR 1.25 to EUR 1.40. 8% operationally, and 4%, thanks to a one-off. Above this, we realized, I think, the perfect balance sheet for the future, with a loan-to-value of 34%, and even more important, and a debt-to-EBITDA of 6.4. And I think above that, there has never been so many value in our balance sheet, with a basic portfolio of almost EUR 7 billion and, which is fully let.
Above that, an investment portfolio and a pipeline of more than EUR 600 million of developments, acquisitions, and energy projects who were in execution. If we bring this into our 2022-2025 plan, and we look first to our leading indicator, annualized income, then you can see that we did a real fantastic work. In only two years, we could bring the annualized income from EUR 300 million to EUR 400 million, which is 30% more in two years' time. And in the same time, we could bring down our net debt to EBITDA from 8 to 6.4, so -1.5. And this, of course, brings us in a good WDP habit.
We can give a fantastic new guidance on which Mick will come back later, but this brings indeed, again, one year in advance, we can reach our targets, but, even with a much lower and a much better balance sheet. So into a good WDP habit, we can bring new plans. And if we look back in the past, we can see that we indeed always work with our growth plans, depending on the moment in time where we had to concentrate on internal growth, the Netherlands, consolidating our Benelux platform, and so on. This one was based on external growth. Plus, we thought we could continue to do external growth and preparing ourself for the future. But after two months, the world changed, and we had to adapt our plans, change our teams, and prepare us for a new macroeconomic environment.
But we did it, and we delivered again based on our long-term key drivers. So we are ready for a new growth plan. BLEND 2027. BLEND 2027 is based on combining multiple drivers and multiple markets. We will blend knowledge, teams, regions all together, based on, of course, robust structural demand drivers. If there would be no demand, we cannot grow, so we still see demand in our environment, and our growth is based on a strong, fundamental financial position and strict capital discipline. Within that frame of demand and a good balance sheet, we can grow byl doing developments, acquisitions, we can capture internal growth, and we try to help our clients by decarbonizing their supply chain. All this within our European ambition. So Team WDP is fully adapted and ready to blend. And of course, we will have to raise the bar.
We raise the bar from 1.25, 1.50 in 2025, to 1.7 in 2027, and I give now the word to Alexander to explain how we will reach this 1.7 in 2027.
... to by blending.
Now let us discuss the building blocks that support our ambitious EPS growth target. To start, we continue to build on the structural demand drivers that support our ambitious, our ambition for external growth. Even though we know that these structural demand drivers have remained relatively unchanged, they are of structural nature. And while there are regional nuances, it's important to know that demand is sector-driven and is coming from a very wide variety of opportunities. To start, when you look at the outbound demand, we have experienced a significant growth of e-commerce during and post-pandemic, and now this growth rate is coming back to a more normalized pace. But still, we see retailers as well as logistics players continuing to invest in their omni-channel business strategy.
Given that the speedy delivery, but also stock control, is pivotal and critical in the success of your business strategy. At the inbound side, we have been seeing very unexpected market events, and these have challenged the resilience and the effectiveness of supply chains. Think about, for example, COVID, the Suez Canal blocking, but also the congestion at ports and the increased levels of protectionistic behavior by local nations. Supply chains can react in multiple ways, for example, through location strategies, but also in inventory and stock strategies. Next to that, we also see warehouse automation gaining up traction and importance in demand. For example, you want to increase the effective throughput within the warehouses, but also warehouse automation is being increasingly important as a result of labor scarcity, but also land scarcity.
That brings us to sustainability opportunities, where the greenification of the entire supply chain is becoming more than just an option. Both WDP, but also our clients, are increasingly faced with legislative changes that come with opportunities. Even though we might experience a cyclical impact, given the market that we're in, the underlying market remains fundamentally strong and very healthy. If you just look, for example, to the vacancy rates in Western Europe, there you're at 2.5% vacancy rate, and they ticked up slightly. Regionally, you can even see regions with quasi-no vacancy. Even when we look at Romania, we are at vacancy rates that are sub 5%, historically strong. Next to that, the strong vacancy or the strong market, you also have land scarcity, which is only building up, but also the reduced level of speculative developments by developers.
This is also reducing the risk of oversupply in the short term. Having discussed the ingredients for new demand, we can now load our investment pipeline, both through new developments, but we also see opportunities via acquisitions. Not only in our existing core markets, where we are very well positioned to capture demand, but also we will increasingly target the French region, but also the German one. By just having added these two markets to our scope, we have now tripled the total addressable market. This will help us, of course, in expanding or in the ambition of WDP, expanding its investment portfolio, but also in further bolstering its European ambition. Having discussed, of course, the external opportunities that we see in the portfolio, we must also look at the internal growth opportunities. We believe that we have a strong total return potential.
Just looking by 2025, we will nearly increase our annualized rental income with nearly EUR 60 million income. This is mostly driven by secured developments that are ongoing and acquisitions, but also the expected levels of indexation. Next to that, we believe that we can extract a great level of value and potential through the rent renegotiations that we see on the long term, given that we are 13% under rented, albeit with a very commercial approach. Next to that, we have 1.7 million sq m of land readily available for development. Finally, we also see great potential in the electrification and the decarbonization of our entire supply chain. We're moving away from just storage and distribution to also integrated energy solutions. And to that...
In order to achieve that, we must further increase first, the capacity and the infrastructure that we need in place, and that is the solar panel, renewable or the renewable energy production. Note that up until last year, we communicated the target of 250 MWp by 2025. We have now upscaled that to 350 MWp by 2027. On a side note, however, we must also highlight the fact that the accretion into the P&L will take slightly longer due to, for example, project complexity, such as grid access, but this is compensated by the higher installed capacity target. Having discussed the key building blocks for growth and new opportunities, I will hand over the floor to Mick, who will give a few comments on the financing, of course, of this plan.
Yes, thank you, Alex and Joost. I think when it comes to the financial foundation of the company, our position has actually never been as strong as now.
...Over the last two years, we have in a new cycle, with substantially higher interest rates, further strengthened our balance sheet and available liquidity, without actually jeopardizing the EPRA earnings per share growth path. And as such, we have positioned the company for further growth, even to such extent that we can today say, with these ambitious plans, with EUR 1.5 billion cumulative capital expenditure, that it is already fully funded, because we have the available liquidity.
When we combine it with the expected retained earnings and, and the recurring stock dividend of combined roughly EUR 700 million over the next four years, then also in combination with our good, solid starting position at an LTV of 34% and a debt to EBITDA of 6.4, then even then, leverage will remain very well under control and where we want to be. And I would say what's equally important is that not only do we have the balance sheet capacity and liquidity to grow, but that our existing cash flow is well protected, because we are very well hedged, with no meaningful hedge maturities or fixed-rate debt maturities until 2027.
So that effectively means that the interest rate reset, which is happening and will happen across the real estate industry, will not be a negative driver for our new growth plan, which is, obviously, very important, when your main KPI is growing cash flow per share. One thing, I would like to highlight, on this slide, is that, you may see that, the hedge ratio is more than 100%, which may seem a bit peculiar. This is, in fact, just for a temporary technical reason, because after the ABB, the capital raising we did end of last year, we took in the money, and obviously, it will be invested throughout this year.
But gradually, of course, in function of the investments, projects, and acquisitions we've scheduled, and so temporarily, we reimbursed floating rate loans, which hedges staying in place, and now we will then draw again on these loans to fund those investments. And the ratio, the hedge ratio, is expected to revert back to 100% by year-end. So that's it on the financial position. We now move over to the last part, and that is the outlook for 2024. So when we look at the outlook for 2024, we can guide for continued growth in our EPRA earnings per share, with a 5% rise year-on-year towards EUR 1.47, and I'll explain a couple of the assumptions and drivers behind it.
Obviously, the most important one is, the strong impact from project completions and also from the acquisitions we've scheduled throughout the year, and which we already announced at the occasion of the ABB end of last year. And we have around EUR 500 million of capital expenditure expected in 2024, so which will gradually be made profitable. Second thing is obviously also organic growth, which is continuing, but obviously at a lower pace, because last year, we have shown in 2023, 6% like-for-like growth, now it will be 3%. That's logic, because, inflation is coming down, and the 3% is just the average indexation across our geographies of 2023 and 2024. So last year, indexation of contracts was 3.5%. This year it will be 2.5%.
It's a simple average of 3% for 2024. Now, there is also one technical item I need to point out, too, with respect to the capitalization of interest on development projects. In essence, because of the fact that we effectively finance them through those project developments through flexible floating rate loans costing around 5% today, but we are only 4%-5% today. In function of the EURIBOR curve, of course, we were only capitalizing the average cost of 2%. And this actually started to create a negative carry in our P&L and is, in fact, like creating a disincentive to grow, because each project you start generates a negative carry in your P&L.
We will now bring this back in—bring this in line with the effective marginal cost, which is the effective cost, is the cost that we also always have ever until now always used to calculate our project development yield. So that gives more consistency in the numbers. And just point that out, very transparent, that this step change has an impact year-on-year of EUR 0.03 per share. And final comment, of course, is that you all know that we have extensively communicated on that, is that in 2024 marks the end of the Dutch REIT status. We will have the final year of a benefit from that REIT status for our activities in the Netherlands.
And then, as from 2025, the government in the Netherlands abolished the real estate regime for the REITs in the Netherlands. So that will have effect as from 2025.
... and is also foreseen in our long-term guidance, of course. So, that's it on our growth plans, financing, and the short-term outlook, and we'll now hand over to you, actually, for the Q&A, and to Alex, who will be our moderator for the Q&A session.
To all participants, please do ask your questions via the Q&A in the chat. We have also invited the analysts, who can raise their virtual hand, and they can ask their question live. The first question is coming from Inna Maslova from Degroof Petercam. Please unmute yourself, and please ask the questions one by one.
Thank you. Good afternoon, gentlemen. Thank you for the presentation. Very clear there. A couple of questions from my side. Would you perhaps be able to elaborate on the components of growth in terms of what you are targeting from the perspective of developments, acquisitions, and also in terms of investments into WDP Energy business?
I think there, on the plan itself, we will give no further detail on the actual composition, because the moment we do that, then the day after, we enter in another world, and then, because the world-
Mm
... is moving. What we can say is that in the EUR 1.5 billion, of which EUR 500 million is related to the existing pipeline, is that the message we want to give is that we have good comfort in reaching that, in that, in the sense that we see in a broad base, on broad-based opportunities across our activities, in developments, in acquisitions, and in, in the energy business. And for perhaps, for, for the energy business, I think there, what we can say in terms of number is that we are on track to realize the EUR 150 million projects cumulative, which we announced end of 2022, and at the ABB at that moment for 2023 and 2024, and that will be a bit more expanded over, with, with another, with another year.
But there are in the growth plan around EUR 150 million CapEx schedules still for the solar and energy business. And the rest, it will come as opportunities present themselves.
Okay, clear. Then maybe a follow-up question on the acquisitions. You've mentioned that, the environment is becoming more favorable and there could be, attractive acquisition targets. Could you perhaps comment a bit more on that, on what type of acquisitions, and also where you see the market moving mostly? And just on, as a follow-up on that, the transaction that we've seen in the Port of Ghent in Belgium, which closed the yields of about 5.5%, I believe. Would be curious to get your view, on where you think this, this stands.
I think to start with, your last question, I think indeed it is, let's say it is one of the signs that markets are reopening, and this is in general. We see, step by step, markets, reopening, around that level of, 5%, depending on, of course, specific items. But so there we feel that, let's say buyer and seller can find each other. In Ghent, it's a little bit higher, but it's also on, concession land. But it is a good location, good building, but indeed on concession. And then we see also today, we see more opening in France, for example. We see, more possible tenders than for the moment in Germany.
Germany is still, let's say, frozen by the NAV discussion, but at a certain moment of time, they will also have to open. But now for the moment, it is more France, but it can change within some months. But I think the most important thing is that we see step by step, let's say, markets reopening and parties coming again to the market. And so that's the reason also why we see more acquisition possibilities in the near future.
Thank you. That's clear. And just, just perhaps on the type of sellers where you could start seeing additional acquisition opportunities going forward.
Not specific. One kind of, I think, yeah, there are... Let's say there are a lot of people waiting to do something, yeah. Some people who had closed funds, other who have to refinance, other who has too many debt. I think it's not one. It's not, let's say, only private equity or people in trouble, no. Because let's say, also, the really distressed sellers, they are not there or not there yet. I think one of the reasons is indeed that it is going still very good in our sector, all the warehouses are rent, so they generate cash flow. And indeed, as long as there is cash flow, and there is no banker, most of the time, who will, let's say, urge his client to sell. So there is time, and we don't see really opportunities in distressed sales.
Probably more in people who has to refinance themselves during 2024 or even more in 2025.
... Very clear. Thank you so much.
Then we have another question from Frédéric, from Kepler.
Yes, good afternoon. Just a few questions on my side. Mick, you mentioned that 2024, you expect 3% like- for- like rental growth. But if I look in, in your presentation, you have also 10% of this contract maturing in 2024, and you mentioned a reversion of 13%. So can we understand that you are not able to capture the reversion that you are displaying?
Yes, but it will take some time, and there is indeed some reversion in our budget for 2024, but it is also partly offset by some temporary vacancies, which we also foresee in our portfolio. So that flattens out, and the remaining part is +3%, which is the effect of indexation.
Okay.
But sometimes, Frédéric, there are also-
On the vacancy... Yeah.
Sometimes there are also, let's say, contracts where only the client can that we cannot that there is an option on the client side to continue the contract. And so then we cannot directly, let's say, hire the rents, even contractually.
Yeah, because also in what you see in the chart, in the chart of the lease maturities, is everything that comes to a break, and a temporary break or a final expiration of the contract, then it's almost only at final expiration. If the client does not have another option at his side to prolong, that we can have a discussion, a real discussion on the prolongation of the contract at the new rent. So that's why it will take time. You cannot think that we could immediately capture the 13%.
But the 13% under renting also means that we can at least structurally capture inflation, and then whenever there are opportunities in contract expiries to sit together with the client, "Okay, what can we do to increase the rent?" And it will be a combination of increasing the rent or and in combination with investing in the building and continuously upgrading the buildings. But that will take some time. And on the occupancy, you should not think that it's a big impact. It's just some temporary vacancies in the existing portfolio. It's less than 50 basis points, of course, because we are at 98.5% occupancy rate, and the guidance, it's mentioned that we expect it to be on average above 98% throughout 2024.
Okay, that's clear. Maybe a second question: Can you guide us through how you will achieve the growth ambition in France and Germany? You know, it's been always in discussion. You have made limited breakthroughs in those countries, so do you want to accelerate by recruiting more people and maybe de facto impact your operating margin? Or how should we look at that?
Well, indeed, I think it was part of our plan 2022-2025, but then the world changed and, let's say, markets were frozen. And then, yeah, let's say nothing was for sale at the right price. Of course, there were things for sale, but not at the right prices. Now, we think that markets will reopen the next years, and then we can do and we can grow into those markets. And of course, in the end, and we always said that we want at least a portfolio of EUR 250 million, and better is EUR 500 million to really start. And then, of course, we will end with local teams.
In the end, when you want to really become and have a real portfolio in a country, like we have for the moment, in Belgium, in the Netherlands, and in Romania, you need local teams. So, at a certain time, we will indeed also go for, let's say, two extra local teams, one in France and one in Germany, but therefore, we need first some quantum.
Okay. And then last question, my side. Can you comment on acquisition you are planning? I appreciate you already give some insight that the market will reopen, but your acquisition plan, is it skewed toward Eastern Europe, where you did in the last quarter a very interesting deal at double-digit yield figures? Or is it also skewed toward Western Europe?
We will try to do, let's say, deals in, of course, in our existing markets, but if we can choose, we should like, and we should even better like to do more acquisitions in Germany and in France, because there we are really in a build-up phase. While in, the Netherlands, Belgium, and Romania, we have our existing clients, existing land bank, existing projects. So there we have, let's say, an automatic growth, while this is not the case yet in France and Germany. But of course, when something pass, that is interesting, we will of course, look at it, and if we can, we will also buy it.
Yeah, because that is the predominant driver. Is it profitable, and does it fit-
Yeah.
with the portfolio?
I guess the hurdle rate is around 7%, like, in house development.
Sorry, I didn't hear it.
What did you say?
I guess the hurdle rate, the yield that you are, you would be looking for acquisition in that is 7%?
In what-
No.
In which geographies?
Yeah.
Because today, buying in Western Europe at 7% when yields are quoted at 5%, and there are deals at 5%, that's, that's not possible, no.
... Okay, that's, that's where I'm having difficulties then, because in the past, you, you used to do only in-house growth development at, at, at active yield, and now you are buying the market, actually. And we remember you said in the past that it's not a strategy that you would like to do, buying at the market yield.
No, no, no.
No, no, we have always been. We have indeed, throughout the history of WDP, we have built ourselves, developed ourselves. More than 2/3 of the portfolio is as originates from in-house developments. But when you look at throughout the cycles, WDP has always been a net investor, and in function of the cycle and the opportunities, we have always been developing, redeveloping, and acquiring. And for example, yes, the last couple of years, we said we are out of the market because we are overbid in the market and because money was abundant and prices were very steep, and we said, we focus on developments. Now, prices have reset and are more reasonable again, and now we also look again at acquisitions, and that has been a long time ago.
Are we the market maker to pay the steepest price in the market? No, we have always strived in our acquisitions to do quick, smart, off-market deals or deals which are a bit more complex or a bit more operational work on. That's how we also look at acquisitions.
Let's say when the market is at five, and we are developing at seven, acquisitions will be somewhere between in that bracket, depending on how strategic, how low the rent is, are there possibilities to higher the rent? So it's not only about the yield, it's about what is the rent today? Can we higher the rent, or is it a redevelopment? Or is it, let's say, important for us to get a critical mass to be able to start in a country? So all those elements will make that. For example, in Western Europe, it will be somewhere between five and seven, and if we can find something at a higher yield, we will of course do it, but we don't think so.
Then, in Romania, there, let's say you have the same 2% margin between seven and nine, and there indeed, we will also, if there is something, something passes, we will look at it, but we look at the total picture. But saying that we will only buy at the same level as we do at developments, that's not possible. Because then we should do-
Right. That's clear.
No developments-
Thank you very much.
We should only buy.
Okay. Thank you. Thank you, guys.
We have next question coming from Steven from ODDO .
Hi, good afternoon, and thank you, of course, for taking my question. Maybe one question, we see a shift from greenfield to brownfield developments or major redevelopments in the market, due to the land scarcity. First question, is this also true for you? Second question, could you please elaborate what it means to risks? For example, we see a decrease in the pre-let levels, but does it also increase the uncertainty on the yield on cost or development margin, given complex things like hassle, remediation? And the last question on this subject: do you also think you should be compensated for these high risks if you see that, like in a higher development margin going forward for these types of developments?
Yes, indeed. I think the easy greenfield developments are over, yes, sometimes you still can find a piece of land. I would say mostly in Western Europe, and in Romania, we still can find and buy land, but here, just buying greenfields, it's almost impossible for everybody, so also for us, and this means indeed, that we go for brownfield developments. One, like we mentioned, during the ABB in Grimbergen, is a brownfield development. We also have, indeed, old sites who were ready now or in the future for redevelopment. That's the biggest potential in the portfolio we have. So indeed, we will do that. And we always did it. It's we do already, let's say the redevelopment of Grimbergen, it's the first redevelopment of Carlsberg was indeed happened already in 1977.
So, yes, we know how to handle with brownfields and for us, a redevelopment, a brownfield development, that has no, no other risks. Okay, you have in the beginning, a demolition and a pollution risk, but let's say, therefore, exists a lot of specialists in, depollution, and then we work, of course, with an external partner. But in general, there are no more, for us, as being a specialist, there are no really higher risks in redevelopments and brownfields developments. And concerning your question about pre-let, it's not that we changed our strategy, it is just, let's say, due to specific reasons. For example, sometime we won a tender in Grimbergen to do that brownfield redevelopment.
Well, we won that deal because we gave a good solution for the depollution, and we had to promise that we would do, and we would start that project. So we had a construction, we had to start construction based on the tender process. And then, on the other hand, other things are, if you, sometimes, some of our projects are with smaller units, like for example, Prinsenhil, Breda. That's really for city logistics that are smaller units. Well, smaller units, you cannot pre-let the those kind of clients. They want to see the buildings, and so that, those kind of things, you need to pre-let. But for example, Breda, the part which is now under construction and which will be finalized in April, is already fully let.
And then we will demolish the second part, and then we can start renting the last part. And so, and then a third reason, besides obligations to build smaller units, are indeed sometimes you do extensions of existing sites, and then those are also, let's say, smaller developments, and then indeed, you have to start sometimes and to do the development, and then you can go to the market. But, it's not, let's say, it's due to specific reasons and not a change in philosophy.
Very clear. And then maybe a last question, a quick one, if I may. Could you please elaborate on which countries have the highest ERV growth in Q4? So can you split it?
It's mainly driven by, by Western Europe, and predominantly a bit skewed towards the Netherlands.
Thank you. Thank you. That's all. Thanks.
Then we have another question coming from Marios, from Soc Gen.
Hi, good afternoon. Thank you for taking my questions. My first question was actually related to the pre-letting across the development pipeline, which I think has largely been answered. But I just wanted to maybe dive into this a bit deeper and ask what the shift was quarter-on-quarter, because clearly there's been a quite a significant drop in that pre-letting. Were there some reconfiguration of some existing developments, or is it just new developments being added to your pipeline?
No, it are, let's say mostly, almost all are new developments, except one. There is one project, where, let's say, the client said: "Finally, okay, I won't continue with this project." And that was due to permitting reasons. And let's say, the duration of getting permits, and therefore. And it was a specific permit for specific projects. But for the rest, I think it are now newly mentioned projects, and not a change. So we did not lost tenants. We just did more of those projects with a big added value, because, for example, those extensions of existing sites, well, there, let's say, the advantage is that we have already the land, and that on our out-of-pocket cost, we can realize a nice profitability.
Yeah, it's just a coincidence for a number of business reasons. And when you look at the project, it's the project in Grimbergen, which Joost explained, with the soil remediation and the building obligation, a couple of smaller extensions in the Netherlands on existing sites, and then the project in Schiphol, where also the demand is more coming from smaller units. And then it's a bit the chicken or the egg discussion, and then on a portfolio, which is fully let, and with construction or development activity declining, we can take that. So it's a coincidence for a number of business reasons, but the philosophy is still, to move forward for new projects on a pre-let basis, of course.
Okay, very clear. Thank you. Just secondly, we're seeing quite a number of major online retailers kind of cutting their logistics footprint in the U.K. They're operating on leaner stock models. I remember in your Q3 call last year, you mentioned there was a potential lower utilization of your warehouses by your tenants. Just wanted to maybe get an update, how you're seeing things trending on the ground, and if you could see maybe any space being handed back, potentially.
Let's say that the situation normalized. I think we are again in a normal market, but with also structural good demand. But indeed, some specific clients for specific products, some fast-moving consumer goods, for example, they have given back or they will give back their buildings because, yeah, they have to optimize their. They had the possibility to give back, and they had to optimize their rental space.
But on the contrary, you also see that sometimes people lose a client, and they don't want to give up their building because they said: "Yeah, if I give up my building, then I lose him forever, because WDP, you will relet him, and then I lost my strategic space." And so even sometimes when our client loses, let's say, his client or his client takes less space, they keep the buildings because they are so strategic for them.
Thank you. Very clear.
We have another question coming from Pieter, from Kempen.
Yes, Steve, thanks for taking my question. As a follow-up on Steven's question on the brownfields. We've seen your peers, listed peer CTP, VGP, being quite active in acquiring these large brownfield plots in Germany. Were these plots that you were also looking at, or does these type of large brownfield developments fit your strategy?
... Yes, of course, they should also fit in our strategy. But, yeah, down there, let's say today, CTP and VGP, they have much bigger teams there. They are, already a long time in Germany. They are deeply embedded, like we are here, in, Belgium and the Netherlands. So we are stronger here to find the, those pieces, and they, of course, are, better in, their, let's say, home regions. But we are open, and if we can, we will do that in France, in Germany, and in the rest of the portfolio.
Okay. It's clear. One question on the market rent values. They were up 6% in the last quarter. Seems to be, were the prices a bit late to recognize the rental growth trend here? How should we look at this?
I think you should also look at it, like, you have seen in the last couple of years with valuations, with the yields, that it's always a bit slower to feed into the, to the, to the valuations. Also, for example, last quarter, in Q3, the ERVs were around 55-56. Now they are at EUR 60 ERVs, but then already we were seeing this on the ground, so it's gradually feeding. What happens on the ground is gradually feeding through in the valuations, but with a certain lag. We see it always much faster with our commercial teams on the ground. They're just a bit, a catch-up effect from the reality.
Okay, very clear. Thank you.
We have another question coming from Paul May, Barclays.
Hi, guys. Thanks for taking my questions. I've got a few. Just the first one, what could you let us know what rate your overhead swaps are at, please? So as you use them, what rate are they at?
Yeah, just our, I think it's not relevant to point out to the... Because we have a macro hedging policy, those swaps are at our average weighted average swap rate is around 0.6%.
Okay. So as you use them, your all-in cost is about 2.1%, something like that, and why are you capitalizing interest at 4.5?
Yeah, but the thing is that the effective cost from an incremental perspective on the projects is effectively the marginal cost of debt, and you should really see the hedges are really to cover the standing assets, and that is a specific temporary situation that is created through the ABB.
Okay, thank you. Moving forward, I assume a fair amount of the EUR 1.5 billion of BLEND 2027 investment will be equity funded. Is that a fair assumption, just given your ABB sort of approach over the years?
Well, well-
As a result, are you likely to be overhedged for a period of time?
No, no, it's really the strategy is really to put those credit facilities to work, eh? We have, I think, the goal was to bring us in a very good starting position. That's when the markets, the investment markets are gradually opening up, that we are ready and have the balance sheet capacity because we sense that with our teams, that it is again a competitive advantage to be able to do acquisition offers without being subject to finance. And so we have the balance sheet capacity for that.
What we wanted to say with this slide, that is that, over this horizon of the plan, when we invest the EUR 1.5 billion by end 2026 to be then profitable in year 2027, that over this period, the four-year period, we will already generate EUR 700 million in expected retained earnings and scrip dividends, and the remainder will then be funded through incremental debt. So actually, to do this, with this horizon, there is no further need for an ABB. If tomorrow we do a large acquisition and faster, obviously, then we can contemplate on doing another ABB. But for this, we do not need it because we have just done one. We have credit facilities available, so we have the liquidity available.
We have a low starting leverage, and we have the foreseen equity coming in from retained earnings and scrip.
It's very clear. Just a final one to probably combine two. You mentioned not seeing distressed disposals, but likely to see more transactions on the back of refinancing requirement over the coming year. I think you mentioned looking at acquisitions somewhere in Western Europe between 5%-7%. Would that mean that your existing values are still overvalued, given the majority are sub-5%?
No, absolutely not.
Yeah, keep going.
So, well, indeed, because indeed our valuation is at, let's say 5%, but that's also based on, a real rent of lower than market rents. And indeed, our reversionary yield is already at, six or above six.
6.2.
So, our reversionary yield at market rents is at 6.2. So let's say this already means that if we buy at market rents, that there we are around that 6%. So it's not that it's not that indeed we are, let's say our valuation is at five, we buy at six, so we have to adapt it. No, no, there is really already that 1% driven by our lower rents than market rents.
... Okay, so when you're acquiring assets, you're unlikely to see re-rental increases on those? You'll be buying at market, or just get an understanding of the various building blocks, sense.
Well, it all depends on the situation and the specific deals, huh? So-
Yeah, it will be a combination.
Yeah.
If it's dry assets, standing assets, good quality, then and but there is no with a long lease, and there is no or limited growth potential, then the yields would be a bit higher.
Yeah
versus an asset in which you can capture in a five-year route, some reversionary, or sometimes you also buy assets, for example, through sale and leasebacks at a bit higher yield, because it's mostly land value plus some cash flow, and then it's deferred development potential. So it's really whatever is an interesting fit with the portfolio, and each individual project or acquisition has its own risk-adjusted return. Like we also explained extensively, for example, in the examples of the acquisitions related to the ABB, for example.
Cool. Thank you very much.
Thank you.
We are always real estate driven.
We have another question coming from Wim Lewi, from KBC.
Yes, hi. Sorry for that. I've got three questions. One is on the yield expansion and then two on the pipeline. So on the yield expansion, I noticed, actually, I was a bit surprised there was still quite considerable yield expansion in the fourth quarter. As I look at the partition over the regions, is it- could you say there, there's been a catch-up movement in Belgium going on? And how do you see that going on into this year?
What happened is that the valuers, and that's why we were happy that they reflected what we see on the ground, is that they further increased the ERV. But they were also reluctant to, at the same time, show positive revaluations and just also then increase their input yield assumptions. That's what explains the yield expansion in Q4. But our valuations are now, for Western Europe, at a net initial yield, so at full occupancy, to make it comparable, at around 5%, which is where we have seen transactional evidence, and that is consistent with a reversionary yield, like Joost explained, of 6%. So I think that's based on the under renting of 13%, so I think that's also reasonable.
Also, when you look at values per square meter, I think the portfolio valuation is very reasonable and consistent with the wider macro environment and outlook prospects for the sector.
Okay, thanks. Then on the pipeline, I just run through some of the quarters, and it seems that about six projects are shifting out slightly in timing, maybe one or two quarters. Is, is that, is there any specific reason for that? I, I was thinking more that construction companies had more available time, or is it due to specifics or the weather, or?
There is more than construction at the project, Wim. Most of the time, indeed, that happens sometimes. Let's say there are two main reasons for that. Permitting reasons. Let's say when we start a project, and we know that we can realize it, we mention it in our figures. But sometimes, yeah, you don't have a permit yet, or you go for a permit together with the client, or you have to change a permit, and that takes more time than in the past. And sometimes you have problems, let's say, with the broader community for your new permits. And besides, let's say, a permitting problem, there is also sometimes the request of clients. We have had some projects where the client said in the beginning: "This is what we want.
We will do it, for example, fully, manually." And even before we started with the construction, they said, "Ho, ho, ho, can you stop just for the moment? Can you stop the project? Because we will automate the project, and we will first, we want to see the impact of the automation and if we have to change, for example, a project or a client makes an automation end." So it's sometimes driven by permits and sometimes driven by client requests, client changes, client adaptations, but let's say not by-
Okay
... constructors who are working, not in time. They work in time.
Okay. And lastly, on just specifically for my model, you mentioned, and there's some projects that go out into 2026 that are mentioned in commercialization. Now, just wanted to know what that means exactly. Like, does that also mean that partly of the project is already completed and rented out so that... Because in my model, I would only put rental income as soon as it's completed, but as, yeah, some of them are only in 2026, that could be an underestimation of the rental income. So I was wondering, are these projects already partly completed and then being rented out? Is there rental income from these or not?
No, I see, I see what your question is. But what you see on the slide with the projects under development are really the projects that are under construction, that are being worked on with their tenant. And if there is in whole or partly in commercialization, that means that is the part that is not yet pre-let. But the project-
Mm-hmm
... be finalized on that planned delivery date. And is-
Okay, I get it.
only income generating as of then.
... But then as we go forward, those numbers will decline. So the CapEx that still has to be spent will decline. That means that it's been completed, and then it's yielding rents.
Yeah, yeah. Once it's completed, then it goes out of the pipeline, and if it's not yet completed, then the cost to come of the pipeline will decline. The investment budget will be the same, and then the cost to come will decline as it's expensed over the next few, predominantly in the next quarters.
Okay, all right. Thanks for that.
Welcome.
Then we have another question from Francesca, from ING.
Hello, everybody. A little question on the development cost. Do you still see development costs stabilizing, or is there any moving parts?
Well, let's say development cost has three main parts: land, construction, and interest cost during the project. Land prices are still going up, so if you can find something, you have to pay a lot for it. They still go up. On the other hand, construction costs, they come down. I think today we can say between on average 10%-15%, they come down. And then, yeah, the third element, let's say there we have seen an interest cost stabilization between 4% and 5% of the interest cost we have to carry during a project.
But just to also give you some ballpark figures on the evolution of construction costs over the last couple of years, it's that pre-COVID, we were. And I'm just talking about weighted average numbers, all in. Across the portfolio, we were at EUR 550 per square meter pre-COVID, then COVID, and in the aftermath of COVID, with the very high inflation, we were at EUR 750. And as from 2024, we should be back at around EUR 650. So still high, but more manageable, and then it's more manageable but still challenging to achieve those yield targets. But at least, we have one of the components is coming our way.
It's fine. And just a second question, to be sure I fully understand. Do you expect the EUR 1.5 billion investments, do you expect this to be equally distributed over the four years of the plan, or you may want to accelerate eventually during the first period?
Could you please maybe repeat the question, Francesca?
Yeah. On the EUR 1.5 billion investments that you announced, is it fair to assuming that this is going to be spent and spent in an equal manner, let's say, EUR 350 million-EUR 400 million every year? Or you may want to have some flexibility and eventually accelerate the investments in the first part of the plan?
Oh, yeah, it always depends on opportunities. And we always say that our growth plans, neither in the investment part or neither in the EPRA earnings per share part, are a straight line. We try to build a straight path, but we don't know what the future will bring. But how we have foreseen it is that we invest the EUR 1.5 billion, that's EUR 500 million accrues in the balance sheet per year. So the mix of investments in acquisitions, projects, energy-related investments, and that they accrue three times EUR 500 million in the balance sheet by end 2026 to have the full- year contribution in 2027.
Mm-hmm. Okay. That's fine. Many thanks.
Then we have a question from Rob, from Green Street.
Hi, gentlemen. Thanks for taking the questions. Just a couple. So the first one on tenant demand, generally, I see vacancy rates across Europe and in your portfolio ticking up. You see pre-lets have come down. I understand what you said. But is there anything I can read into what is happening with occupier demand? Is it coming off or is it, you know... Can you talk to that a little bit, please?
Yeah. I think, like I mentioned at the beginning of our plan, and BLEND, of plan is based on a structural good demand for new space—for new and existing and for logistics spaces. But indeed, I think we can say that, let's say the market is normalizing. It's not overheated anymore. Sometimes, we had already re-let a building before it became empty. Let's say now we have to work again, like we had to do before. It is normalizing, and for some project and some decisions, you see that, some delays, it takes sometimes a little bit longer, since indeed, economy is cooling down. People are sometimes recalculating their, business cases, and let's say, you can always stay six months longer or one year longer in an existing building.
So there you see a normalizing factor, but the demand brought over the different sectors in the different countries stays there. Don't forget that, let's say, the supply chain is the heart of every company. And for example, and what happens now in the Suez Canal and the Red Sea also stresses again that it's not just in time anymore, but just in case, and that you need strategic stocks.
... That makes sense. So just to follow on from that, if tenant demand is normalizing, what gives you the confidence now to kind of step up on the external growth in developments, compared to the last couple of years, where you have been a bit more conservative relative to some of your peers, we can say?
We have been conservative on the fact that we said, we don't need to do those investments in order to get, to our targets. And we even got, our target one year before, because we had also other drivers? We had faster than foreseen internal growth. We could, roll out our energy solutions faster than foreseen. And so, we had to, let's say, adapt the profitability, of our, developments. So we said, we don't need it. But in the end, we continued to do, developments, acquisitions, and we did. We said we would do EUR 250 million, but in the end, we did EUR 450 million. So, let's say we were prudent on profitability, but, let's say, it's not because there was less demand, and I explained why.
And the fact that we do those developments, even without pre-let, being pre-let, this means that we are confident in it. And also, if I say normalizing, then it is normalizing at a high level.
Mm-hmm. That's really clear. That makes a lot of sense. Just finally, just one thing. You spoke about Red Sea, supply chain disruption. I read in the papers all the time, nearshoring in Europe. Have you seen anything, you know, tangible? Is it coming through, and or how long is this runway yet? You know, where are we on this? Are we right at the beginning? When should I start penciling it in?
Yeah, we see, let's say indeed, it takes time to come back, to bring production back. I think the first and the most easy thing is bringing strategic stock. But now, let's say we see indeed the first signs of really people who are investigating in Romania, but even in Western Europe, to reshore or to nearshore, to stay close and to enlarge productions instead of going away. There we really see now first signs of those projects. But it takes long-
Okay.
to take a decision.
Mm-hmm. Thank you.
We have one more final follow-up from Inna.
Yes, thank you very much. Just two very quick questions. You mentioned that the market is now between 5%-7% on the acquisition side, and that's where we're starting to see transactions happen, and 7% for developments. On that 5%, does that mean you believe that this is where the valuation will stabilize? And the second question is, what is your expected LTV by the end of the growth, BLEND growth plan in 2027? Thank you.
Yeah, first on the valuations, we obviously don't have a crystal ball, because what will... where will interest rates move? That's, I think, the $1 million question, or how fast will they start to drop? I think with the current macroeconomic figures and outlook, that the 5% is very reasonable. May still tick up a bit. That could be, but on the other hand, when we look at research forecast, ERVs are also expected to grow, for example, in the Netherlands, in Western Europe, with another 5% this year. So I think any further yield expansion we at the current and in the current environment, should be limited and be relatively well absorbed by a synchronous rise in ERVs.
And also I point out to the fact that the portfolio in itself is also still 13% under rented. On the LTV, by the end of the growth plan, so now the LTV is 34%, and if we then execute the EUR 1.5 billion, then we should trend back towards 40%.
Thank you.
And then we just have two more questions from the Q&A, and then we can wrap it up. The few questions, I'm just going to combine them. It's again on our view on the supply of the market and or the risk of any overhang. And as Joost already mentioned, the froth is coming off. The market is coming from great to more normalized pace, and we're still very strong. But looking at the current development pipelines in our core markets, just ballpark figures, when you look to Western Europe, typically, or the current supply is around 10% of total supply under construction, of which, let's say, 80% is typically being pre-let at current time.
So even if demand would fall to zero, the risk of any supply overhang is limited to 2 percentage points, meaning that the vacancy rate would not increase beyond 4.5%. In Romania, it's slightly different. We're at 4.5%, and in a worst case, vacancy could go up with three, 4 percentage points as a result of peers that historically have developed on a speculative basis. And then a final question for Joost is: would you consider increasing your Nordic exposure, either indirectly through the stake in Catena or directly by entering the market yourself?
I can give an answer, a very clear answer. That's, the same as I did the last two years. No. Indeed, we are very happy with our participation in Catena. It is 10%. We keep it at the 10%, but we are happy with the 10%, and that's the agreement we made with the family Paulsson and Backahill. And of course, with by being a partner of Catena, we will not go separately on our own in that market.
If you have any concluding remarks?
Thank you, Alexander, Mick. Thank you, everybody, for listening, for all those good questions, and I think I can conclude by saying that we, WDP, we are ready to BLEND, and I'm sure that our DNA of entrepreneurship and client centricity will make the difference again in our BLEND 2027 project. Thank you for your time. See you soon. Thank you. Bye-bye!