Ctp NV

AEX:CTPNV

Earnings Call Transcript 2024-Q1

[Unknown Executive]

Good morning, and thank you for joining us.

In Q1 2024, we continued our strong operational and financial performance. But before digging into the details, I want to take a step back to reflect on the strong growth we've seen in the 3 years since our IPO in March 2021. We've more than doubled our GLA and we have grown our land bank by 162% to 23.1 million square meters, locking in the potential to double our GLA again. We increased the value of our investment properties by 138% to EUR 13.8 billion. And we've grown our next 12 months contracted revenues by 16% to EUR 742 million. We're proud of the growth we've delivered in the past years, and there's much more to come.

Now coming back to the first quarter numbers, our power maker model continues to be successful, helping us grow with our tenants throughout the CT Park network, with 2/3 of our leases signed with existing tenants and our clients are happy as illustrated by the 94% retention rate. Firstly, we signed more leases at higher rents when compared to last year. 36,000 square meters of leases signed in Q1 of 2024, that's 13% more than we signed in the first quarter of 2023. Our average rent per square meter is up 6% compared to the same period last year. We remain the market leader in most of the countries where we operate. We have people on the ground at each CT part will give us a good feel for what's happening with our tenants in real time. In Q1, we saw continued strong demand from manufacturing tenants in the CEE region. They accounted for 25% of all leasing in the last 24 months, and we expect this to grow in the coming years due to the ongoing nearshoring trends a CE is the business Smart and best cost production location for Europe. We also saw this with our growing number of Asian clients who now represent nearly 10% of the portfolio, producing in Europe for Europe. Of course, there's continued strong demand from 3PLs and retailers as well. CE remains undersupplied by a class space with GLA per capita below the European average in most CEE countries. So there's still plenty of room for us to grow. Running through our business lines, we grew the portfolio to 12 million square meters of GLA and remain on track to reach our 20 million square meter target by the end of the decade. We have a wide diversified and international tenant base with over 1,000 blue chip tenants from a broad range of industries and our tenants pay on time with a rent collection rate of 99.9%. Looking at the overall market, we see supply of new product is decreasing in the current higher interest rate environment. This brings opportunities for us as our track record shows, we are able to grow profitably even when market conditions change. In Q1 of 2024, we delivered 169,000 square meters which were 95% pre-let at completion, and the yield on cost of these completions was a market-leading 10.7%. We now have 2 million square meters of properties under construction, this is within existing parks and an additional 15% is under construction in new locations, each of which can grow to over 100,000 square meters of GLA. When fully let, these projects are expected to add EUR 146 million each year to our rent roll. This year, we expect to deliver another 1 million to 1.5 million square meters we expect yield on cost to remain above 10%. And the 2024 deliveries are already 43% pre-let. As usual, we start with a slightly lower pre-let than our peers. This allows us to deliver consistently higher year-on cost. And we expect to achieve an 80% to 90% pre-let ratio on these completions at delivery. We have a land bank of 23.1 million square meters. The majority of this is in existing parks. Indeed, together with new locations, over 90% of our land bank is in a CT part. So we have lots of future growth locked in, and we're on track to reach our 20 million square meter GLA target by the end of the decade.

Moving on to our financial highlights. Our like-for-like rental growth came to 5% in Q1 of 2024, driven by indexation and strong rent reversion. 68% of our portfolio is now indexed to the Consumer Price Index, while the remaining 32% has fixed escalations. We expect the percentage of our contracts linked to CPI to increase further over time. The reversionary potential portfolio stands at 14.5%, and we've proven to be very successful in capturing this potential as leases come up for renewal. Our gross rental income for the period increased 15.8% year-on-year to EUR 157.5 million. Net rental income went up by 17.5% year-on-year as we reduced service charge leakage, the NRI to GRI ratio in Q1 of 2024 came to 97.5%. The company-specific adjusted EPRA earnings per share increased 10.7% year-on-year to EUR 0.20. And on track to reach our guidance of EUR 0.80 to EUR 0.82 for the calendar year.

Now I hand over to Maarten to cover valuations, funding and our outlook.

[Maarten Otte, executive]

Moving on to valuations. During Q1 and Q3 reporting, only investment properties in the development are revalued, while there's no devaluation of the standing portfolio. The gross asset value of our portfolio grew to EUR 14 billion, up 2.8% compared to year-end 2023. The Q1 2024 devaluation amounts to EUR 166.7 million driven by our development and reflecting the leasing and construction progress on those. Of our 23.1 million square meter land bank, 70.5 million square meter is owned and on balance sheet. The remaining 5.5 million square meter is under option. With the 50% build-up ratio, we need 2 square meter of land for 1 square meter of GLA, which means we can build over 11 million square meter of GLA on our current land bank. Taking into account the average construction cost of EUR 500 per square meter and land prices of EUR 50 per square meter with total investment cost for 1 square meter of GLA comes to EUR 600. This [indiscernible] portfolio sales around EUR 950 per square meter allows us to realize the potential development profit of EUR 350 per square meter. We have conservative valuation yields reversionary yield now stands at 7.2%. And looking ahead, after the 80 basis points increase we experienced in the last 2 years, we expect no further material yield widening. However, we do foresee further positive ERV growth on the back of continued tenant demand due to the positive impact of the secular crowd drivers in the CEE region. In most markets, inflation resisted the real rents remained lower than 15 years ago, illustrating both the affordability for our tenants as well as the rental growth potential. Our EPRA net tangible assets per share increased from EUR 5.92 at year-end 2023 to EUR 16.50 at the 31st of March 2024, representing an increase of 3.7%. We have a robust balance sheet and strong access to me purpose of capital. In total, we raised EUR 1.1 billion year-to-date. In February, we went back to the bond market after nearly 2 years as pricing normalized. We issued a EUR 750 million 6-year bond and mid-up plus 220 basis points. lets us more than 5x oversubscribed despite a upsizing from EUR 500 million. Together with the bond issuance, we launched a tender offer and repurchase solidated bonds with a total nominal amount of EUR 250 million. Our pro forma cash position stands at EUR 1.4 billion, more than sufficient to meet our cash needs for the next 12 months, including our RCF, which we increased to EUR 550 million, our pro forma liquidity position amounts to nearly EUR 2 billion. Our average debt maturity stands at 5.2 years, with no material dematurity until June '25. At the end of the quarter, CTP's average cost of debt came to 2.13%. As we'll continue to take up going forward, as we bring on new funding to finance our development led growth. Our high-yielding portfolio and market-leading development yield on cost allows us to grow profitably, even with higher funding costs. 99% of the debt is fixed or had until maturity. And thanks to our strong cash flow generating portfolio, we have healthy interest coverage ratio of 3.4x, our normalized net debt to EBITDA stands at 9.1x. Our LTV ratio was 45.9%, down 10 bps compared to year-end, 23%, driven by development completions. This is slightly above our 40% to 45% target range, but we expect the LTV to come down as the devaluations of the developments become fully booked. We continue to deem this LTV range to be appropriate given the high yielding nature of our portfolio. We are confident in the outlook for CTP. And despite some slowdown in the macro environment, leasing dynamics in the CEE region remains strong leading to continued rental growth and supporting valuations. Our pipeline is highly profitable and talent let. And thanks to our industry-leading yield on cost, we are able to deliver sustainable and profitable growth. Also in the current higher interest rate environment. It sets us apart from other players in the sector. We confirm our EPS guidance of EUR 0.80 to EUR 0.82 for 2024, and we target to reach annual rental income of EUR 1 billion by 2027 and are on track to reach 20 million square meters of GLA and annual rental income of EUR 1.2 billion before the end of the decade.

Thank you for your attention, and we now welcome your questions.

[Operator]

[Operator Instructions] Our first question comes from Vanessa from JPMorgan. Vanessa Guy.

[Vanessa Maria Guy Vazquez, analyst]

I have 3 questions. So the first 1 is on the yield on cost. If you could give some color on how this is developing outside of the CEE region.

The second 1 is more on the like-for-like rental growth? And what are your expectations for the rest of the year? And then the final 1 is on data centers. So you commented in your last call that you were looking into this. And I would like to know that if there's been any developments from this part.

[Unknown Executive]

Yes [indiscernible] questions. Yes. So in terms of euro costs outside of CEE, as you see, we target 11% in our core markets in Germany, we are probably gaining 9, 9.5 in a couple of of our project. So we don't get to the pen, but we confirm the 10% plus across the whole portfolio. In terms of like-for-like...

[Remon Vos, executive]

Maybe, Richard, can add 1 comment to the deal on cost outside of CEE because also we see construction costs coming down in Germany, for example. So we may be not around the numbers, biggest right number used to be mentioned, but maybe up of north of 9% even also in Germany because of the fact that there is indeed a construction cost coming down, which helps a little bit in Germany.

[Unknown Executive]

Yes. Thank you. Thanks, Remon. And then in terms of the like-for-like for the rest of the year, Almost all of the indexation clauses take effect on the first half of January, which is why we see pretty much our guidance we probably for the full year reached in Q1. We do have a few leases where the indexation is first of March or April. But going forward, any real change in the like-for-like will be driven by our capacity to capture reversionary growth. As you know, we have a reversionary potential of 15% at the end of last year, we continue to see PRVs trending higher in most of our markets. So we think we're in a good place to deliver on 5% plus.

And then finally, on the question on data centers. We are still in research mode they're checking out where and how we think we would possibly be able to fit them into our park network. Now if you look at our tenant mix, we have a very strong percentage of manufacturing around half of our tenants manufacturing. So we're quite used to the idea of needing a lot of energy. So we do see then we will see a number of opportunities across and network is also in 1 of the other brand in Germany.

[Operator]

Our next question comes from Bart Gysens from Morgan Stanley.

[Bart Gysens, analyst]

Bart Gysens from Morgan Stanley. Look, everything is clearly going very well operationally, we saw vacancy tick up a bit to 7%. And I don't want to put too much emphasis on 1 quarter move, right? But could you perhaps provide a little bit of color on, is this a timing thing? Is this a 1 quarter thing? Is it strategically that you allow your vacancy to go up a little bit more? And perhaps a bit of color on how you could see this develop over the year.

[Unknown Executive]

Thanks, Bart. Happy to take that. Yes. Well, we have been in around, what, 96% of vacancy over during the past 10, 20 years. So yes, it's a bit of a fluctuation. But we will remain on target to be around 95% in some markets a bit higher, others are a bit lower, but average portfolio, 95% occupancy remains the target. We see strong demand. As Richard explained, also the introduction, we've done more deals than we've done same quarter '23, so closed sign lease contracts, but also we have issued way more proposals. So there are and there is good demand for Central Europe, in particular at the moment because, obviously, that is very much the portfolio in Germany is now about building new stores and getting sites prepared and doing rental growth, which we do successfully. But anyway, yes, so we see demand coming from existing clients a lot for the region Central Europe for nearshoring from manufacturing, cost-effective location, all kind of different sectors, semiconductor business, but also automotive business, et cetera. At the same time, with consumer spending and the lack of modern space in places like Romania or Hungary or Serbia, we do see good demand and 50-50, as Richard said, manufacturing in the rest logistics and all of that. So not quite positive. And with regards to Germany, again, we also signed a [indiscernible] with a Taiwanese semiconductor producers, if you like, part of ecosystem, part of the network we have in Taiwan, where we have been active for more than 2 decades, a company called Kanta. And for them, we're going to build a super high-tech facility in Germany in July close to Atan. So also new developments have started in Germany, but overall, good and strong demand from the different industries.

[Unknown Executive]

Maybe to add on that, Bart. If you look to Q1, Q1 leasing is always slightly lower than other quarters. So typically, you see the take-up in leasing from Q2 onwards. So it's naturally you see sometimes the quarterly volatility. So you shouldn't read too much into that. If we look, for example, into April, and April already, we signed more than 200,000 square meters of new leases. So that continued demand is going on. And like Remon said, we expect that occupancy to remain around 95%.

[Operator]

Our next question comes from [indiscernible] from Bernstein.

[Unknown Analyst]

Great. [indiscernible] from Bernstein. Just 2 remaining questions from my side. You're still targeting a range of the 1 million to 1.5 million square meter development completions you mentioned quite a few times that demand is very strong. So do you think it'll be maybe towards the upper end of this range for this year. And then secondly, just on your average monthly rents for leases signed over Q1, I see they're up year-on-year. more broadly in line with the full year '23 average and not the levels you saw in the second half of last year. So any further color there will be appreciated.

[Maarten Otte, executive]

Yes, Marios, Maarten here. And maybe to start with the last question. There's more due to the country mix you had, so as you know, of course, the rental levels we are signing in the different countries are at different stages. So in Czech, we have, of course, seen much more rental growth already. in the past years while other countries like Romania are just at the start of the rental trajectory. So if you look specifically to Q1 and the average rent signed in Q1, that is purely driven by country mix. So we saw a bit less leases in Q1 in Czech Republic it's on the average for the full of last year. If we take away the country mix and if we look on a country-by-country basis, we continue to see an uptick in rental growth, but Richard already was also referring to EVs, also continuing pickup. So that fact is really, really exacting the specific deals we signed and the wage of the different entries India rather than anything else. So overall, in 2024, we expect the figure to be higher than 2023. And then moving on to your first question on the amount of deliveries. Indeed, the guidance is between 1.5. If tenant demand remains as strong as we see now, we indeed will most likely be on the upfront of that range. We'll give an update again at the half year where we stand. But for now, we are very comfortable with that. And most of the pipeline we have of the 2 million will be delivered this year.

[Operator]

Our next question comes from Steven Boumans from ABM AMRO.

[Steven Boumans, analyst]

One follow-up on the previous question on the vacancy, which countries do you see the fans today? Is there any relationship to the real macro in some specific countries?

[Unknown Executive]

No, I think -- sorry, Maarten, in a late the vacancy, I think, if I may take this, you had the vacancy currently for CDP in Poland, the Polish market. As you remember, we entered last year or year before maybe with the acquisition, we started to build a speculative basis. And we knew that we need time to work on doing these deals in order to get her vacancy in Poland, and that's where the highest vacancy is. Why is that? Well, we wanted to enter the market, make sure that we do have properties available to offer that was our market strategy at that time, which I'm happy to say and confirm that we were talk quite well for us, and that is the way we have been able to secure a nice position in the Polish market, which is centrally Europe's largest country and what we believe very much location where companies will continue to go to the near-shoring for in Europe for manufacturing related to automotive semiconductor industry, but also defense industry related, et cetera, et cetera. So that's why. And I'm not going to get to 95% occupancy in Poland by the end of this year. And it has never been the target. We need a bit more time for them, but the take-up is very good. And Q1, we've been able to sign leases. Q2 will continue to sign obvious mostly due to stronger interest signing as Maarten also confirmed. So that's the market other markets, core markets, low vacancy in check. No vacancy in Slovakia, nothing in Serbia. Maybe a bit below the 95% in Romania. We have been quite enthusiastic. In Bucharest, but also on the -- along the west border with Hungary were at 93% occupancy at the moment, but I think they will close by year-end with 95% in Romania as well. But yes, we remain the kind of company who do speculative or spark speculative and always have space for tenants moving quick. And that remains the approach going forward, especially in this market where we see less development from other companies either developers. I mean peers, we provided they have less dynamic, they don't respond quick or they don't have the funding or they have different funding costs, whatever it is, but this gives opportunity for us to benefit from that, okay. And that's how I see -- how I would answer it, Maarten [indiscernible] addition.

[Maarten Otte, executive]

No, that's it.

[Steven Boumans, analyst]

Okay. Very clear. Then on second and last question. We see more branches developments in Western Europe, along with densification, so higher GLA to [indiscernible], given your comments on strong markets and CEE, can we expect more brownfields in densification in your countries to going forward?

[Unknown Executive]

So for us, it's mostly Germany at the moment. I think that's the only country where we are buying brownfield actively. If I'm not mistaken, we did our [indiscernible] deal in Mulheim, hectare or an urban business part in Wielheim, close to Eson and [indiscernible]. And Wuppertal, we closed on a project in Assen. Those are technical universities. We believe in the modernization of the German house freight industry with all of the semiconductor initiatives, Intel also DSMC with posher is and dozens of billions of euros going into the industry. I'd like to make sure that we are part of that buying land in Germany like brownfield with infrastructure, utilities and zoning, I think, is better in many, many ways than doing a greenfield. So in terms of ESG, but also in terms of permitting and support local authority. So I think for us, the moment, what we look at when we look at Germany, we think this is the right time for us to enter to continue to build a land bank, which we then over the next 5, 10 years, we'll be able to develop our projects in there. So brownfields mostly Germany, I don't think any other markets, maybe coincidently, we buy some company. And that will be obviously going forward. In the Czech Republic, we put answer this because of the lack of land, there this is very little enable so you're forced to buy branch it's also good. We've done that. I mean we've done that for 20 years. So we continue to do so.

[Steven Boumans, analyst]

Okay. Clear identification, so more GLA per length. Is that the trend that you see in your key countries?

[Unknown Executive]

With things -- especially for sort of a more open locations, you will continue to see densification. We plan to start the double story, building in the Czech Republic, later this year, early next year. So we do start to see that, but that's going to be in urban fast. And general about Central Europe brownfield. They're more used now for transformation to residential as the tests in Central Europe continue to grow, as you may have seen from our Central European paper, the Central European capitals at a fastest grind in Europe. So I think that's a trend will go on for a couple of years. But then at some stage, yes, there will be more -- there will be brownfield opportunities in Central Europe.

[Unknown Executive]

One more thing to add to that, Germany, it's not like brownfield is not always us a location where we would build pure logistics with logistics, I mean, a big warehouse and then 7% in office for sanitary areas, 7% of the total legible. I mean if we look at a brownfield locations Muerta, Mulham or Nashta which we acquired last year in Germany or Aspen, the 1 I mentioned. They are beautiful occasions there in the city driven business part of [indiscernible]. So the kind of property we would develop there is not a big box warehouse. It's much more -- could be at pace, could be space with R&D facilities could be way higher office and other space and not the warehouse to be repair and center team rooms could be, et cetera, et cetera. So then the experiment of land, you will see in the tear more potential and higher -- have more mostly [indiscernible] area in detainee that is also because those locations are good enough and better than a typical outstood the logistics side, yes.

[Operator]

Our next question comes from [indiscernible] Lee from Kempen.

[Unknown Analyst]

[indiscernible] from Kempen here. First one, on the pre-let rate for the pipeline, for 3%, as you mentioned, it is in line with historical rates. If you look back at 2022 before. But if you compare it to last year, that's a bit lower last year, was it 49%. So was there anything exceptional in '23. So could you add a bit more color there? And the second 1 on guidance. So if we take the quarterly run rate and annualize that, you're already at the lower end of guidance. And then I think we can agree that throughout the year, the run rate we actually on we have to capture no reversion also complete more development. So could you add a bit more color there as well? And also, is there an update when should we expect that?

[Unknown Executive]

Yes. So maybe to start with the last question on guidance. We confirmed our guidance, EUR 0.80 to EUR 0.82. Indeed, if you look at run rate, we are on track. You will indeed have some more deliveries and indeed, reversion contributing to that in the second, third and fourth quarter of the year. On the other hand, we also, as you know, given our development exposure, a relatively high cash balance and see that, of course, reflected in the cost of debt with the new cost of debt coming online. So we did a bond in February. That's a coupon of 4.75. If you currently look at marginal cost of debt, in the range of 4.50 to 4.75. Of course, if we bring on those new loans and bonds, you see that reflected in the financial expenses. So that's why we stick to the guidance we have given. We will confirm or upgrade or change our guidance. We look at it quarter-by-quarter. At this stage, we are comfortable with the range of 80% to 82%. But we'll give you an update again at the H1.

And then to move to your first question, it was around the pre-let. Indeed, you referred to the figure of last year, which we had in Q1. As you might remember, that was excluding Poland, where I started, like Remon mentioned before, some more speculative development. The figure this year includes Poland. So there a slightly difference in the scope there. So if you look to open pre-letting, we are very much on track and a similar trend than last year.

[Unknown Executive]

Yes. And [indiscernible] is to deliver [indiscernible]. Our target is to be with the buildings for 90% on completion. As you've seen in the last years or deliveries are normally loaded towards the back end of the year as some of those main construction season. So we're very comfortable with where we are in the moment leasing lighter is better for our year on cost because rents continue to go in.

[Operator]

Our next question comes from Rob Jones from BNP Paribas.

[Robert Jones, analyst]

A couple of quick ones. Firstly, thank you for the detail on the delta between the portfolio value per square meter and the all-in development cost of square me to give us a real clear computation as to how we can think about the current future potential for the development pipeline when I ask about new land acquisitions, I appreciate you've got a huge amount of land and thus buildable area to be getting onward for the next 8, 10 years. But when I think about new lab acquisitions, do you have a view in terms of the expected yield on cost differential between land that you might be buying over the next 12 last month versus the existing land bank.

The second question was just briefly on soaps because I'm aware that have it in my model, 15% yield on cost obviously very high. But remind me what the total planned investment is there.

And then the third 1 and final 1 is just on the dividend. I think you've given a script option this year and I don't know whether you know yet what the script takes is likely to be so I can think about count in the model.

And then the very final one, Richard, happy birthday over day. It looked like a serious amount of cake construction across the group.

[Richard Wilkinson, executive]

Thanks very much, Rob. Yes, maybe I answer questions the other way around. If we look at the dividend, I think Remon has said that since he has paid off with the rents our part, he will be taking almost all of this dividend in a script. Trade correction, technically is an with the option for cash. So people have for cash. So we would expect more than 75% more like 80 plus to be retained within the company. In terms of the role, the year on cost, 1 megawatt cost you around EUR 700,000 to install. So I think that should be good for you for your model. And then in terms of the new land, when we calculate yield on host we calculated based on the market value of the land. So in reality, we're paying land today, that's at current market value, which is the same math as if we are mobilizing part of our land. So we have the same threshold by land as we do to activate.

[Unknown Executive]

Rich, there's 1 comment to buying land because the most of the land we buy, we buy that in system business for us. So we grow parts. And then the benefit is that if you do so, then all your infrastructure costs, utilities, all of what you do, obviously, the large product, the better it comes, right, because then you can divide all those costs on more square meters of land. So if you look at land banking even today, before this call at and myself, we had to talk about other land that is land next door to parks, which we operate. And then we think we can grow the park and some of that makes sense. So that's where you can buy land, which will help you to continue to do your 10% plus wells yield-on cost kind of numbers. Yes, that's always -- we buy a huge amount of land and I also say data buy less land, let's focus on building on land we already have anyway. So we seem to like do that, and very careful. And if so, we obviously have like kind of investment committee within CTP look at different opportunities, which we consider, but yes, we would then always look at, okay, can we hit first question, can we be north of 10% [indiscernible] yule in the first land buying and as business part growing existing business parts will help.

[Richard Wilkinson, executive]

Thanks, Remon. And if you look at the total land bank, the 23.4 million square meters, 77% of that is in and around existing parts and another 15% is the land for a new part in part for us is more than 100,000 square meters. So over 90% of all the land bank is for which is in and around our existing part.

[Operator]

[Operator Instructions] Our next question comes from Siraj Guia from Green Street.

[Unknown Analyst]

You mentioned a few occasions that you expect ERVs to continue to grow and I just wanted to get a bit of a sense on if you have some additional color on which of your markets you expect to see the highest growth versus the lowest? And how much you think you expect them to grow over the next 1 to 2 years based on some of the structural tailwind you referred to would around 5% per annum be reasonable on average?

[Unknown Executive]

So if you look to EV code and the quantum, we haven't given a specific guidance on the amount, but the figures you mentioned slightly ahead of indexation can be reasonable as we see continued more demand. So you would expect that the vehicles outpace indexation a bit, but that's the theoretical analysis of that. If you look to that specific countries, I said earlier, it depends a bit on what states they are in. So for example, coming back to Czech Republic, they've seen already a lot of vehicle there. So for us, that the potential is more to capture that. So the highest reversionary potential we have in check next to Germany, but that's with, of course, our specific portfolio in Germany, which is underrented. And where we have the catcher potential with rents on expiry increasing 30%, 40%. But if you look to the CEE markets, Czech has seen the most rental growth. And like I said, our opportunity for us to capture other markets, we are just at the beginning of that. Romania, we only start to see the rental growth. So there's no more potential there long term. Slovakia, also have seen some opportunities for rental growth. So it depends a bit on where the market is at -- simply in terms of maturity. But on average, we expect to see rents growing in all of our markets and the quantum might be slightly different from market to market.

[Operator]

Our next question comes from Jonathan Kownator from Goldman Sachs.

[Jonathan Kownator, analyst]

Just one, please. Obviously, you're describing strong markets. You have a huge land bank available. What would be the conditions for you to be able to accelerate your development pipeline if you think that would make any sort of sense.

[Unknown Executive]

Yes. Thanks, Jonathan. Look, I mean we're constantly looking at the market in all of our everywhere across our region. And [indiscernible] earlier. Our core business is we build building next ones that we already own in the past that we already own and we lease those to tenants who we already know. So the real guide for us will be when we scale the tenant demands getting even stronger or firming up again. So that's something that we kind of review on an ongoing basis. Now we had 2 million square meters under construction at the end 2023. We deliver 169,000 in year 1. We started with the same amount. So we have 2 million square meters still under construction. So for now, we feel very comfortable reloading the pipeline, the net debt continue time we say we think we can also [indiscernible].

[Jonathan Kownator, analyst]

So we think that the 2 million square meters is a good number to have a run rate going forward, right?

[Unknown Executive]

Yes. I mean, yes, but there's not all the things that we're going to be able to deliver within the 12-month period.

[Operator]

And that was our last audio question. To the webcast question, our first question comes from Francesca Ferragina from ING. The question is, where do you expect LTV to land by year-end? Also, how do you expect the average cost of that to involve? First to expect the stabilization at this level for the rest of the year?

[Maarten Otte, executive]

Yes, Francesca. So if you look to cost of debt, as I said in 1 of the earlier answers that will take up over the year as we continue to develop and therefore, we continue to bring on new debt. Indeed, if you look to our existing DAP stack, and that's all fixed or had still maturity, and we have no expiries during the year. The first major expiries are only in June 25. So our cost of debt for the existing debt stack doesn't increase. and remains, of course, the low level that we have been able to secure by issuing the bonds in 2020, 2021, beginning of 2022. But the evidence cost of debt will pick up as we bring on new debt at higher rates. But still, if you look, of course, and then we compare -- because of that, we have to bear with the investment yield. Ever have a yield on cost above 10% borrowing at remains a very lucrative business. And you can see that in our P&L and also, of course, the valuation of less we are able to book. So that's, of course -- the increase in cost of debt goes hand-in-hand with all the development profits we are able to realize.

And then on the LTV, where do we expect it to end by year-end? I would expect it to be around 45%. Of course, main impact will be what the valuations do. What we said on that is that we don't expect any material further yield widening. But you also heard we expect further ERV growth. So you can do the math on what that means for valuations. And then the other part, which, of course, feeds into that, how much land do we buy? And do we buy it with gas or do we buy it or secure it basically through options. Our preference is to secure 2 options because that's a less capital-intensive way of securing land. But there might be cases in which we do cash acquisitions, that simply is what the seller wants. So there will be a better balance between the acquisitions we do, the amount of deliveries we are able to complete that comes as well back to the previous questions also on dividend. We will be able to retain the as majority of our earnings as we expect a large take of script. So all those things feed into the LTV, and then we expect it to be around 45%. So basically, the upper end of our guidance range.

[Unknown Executive]

So just to follow up quickly on that Maarten mentioned that the acquisition opportunities like in Q4 of 2023, we had a couple of opportunities to buy something to sell and to pose before year-end, we had to pay cash, but we were able to get a very, very attractive deal on that. And as a consequence of that, a yield, of course, more than the 45 on [indiscernible] wasn't there the [indiscernible] it would have been the year-end. But what you see is that in a normal quarter, you would expect us to be gradually leveraging as we deliver deliveries or deliver developments and as Martin said, we'll be -- we're expecting most to pick up, which will also contribute to the figure.

[Maarten Otte, executive]

Yes. And as you know, we also look closely at our cash flow metrics because LTV is not something we look at in isolation. We look at it together with our net debt to EBITDA stands. And as you might have seen, our normalized net debt to EBITDA now stands at 9.1x, and we are very comfortable with that. We target to keep that below 10x.

[Operator]

We currently have no further questions. Then I will hand back over to the management team to conclude.

[Unknown Executive]

Yes. We'd just like to thank everyone for their interest or their questions and wish you all a great day. Thank you very much, everyone.