Warehouses de Pauw NV
XBRU:WDP
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Warehouses de Pauw NV
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Let's restart then again, excuse us for the delay. I started by saying that indeed, what else can we do between the publication, the end of January and the approval next week of our full year results of '22, indeed, just confirming this message. That's the recurring moral duty of Q1. And indeed, operationally, we can say that market fundamentals stays very strong with a healthy demand for warehouse space in combination with the lack of new supplier.The supply chain stays crucial for every industry, even in a more challenging macroeconomic environment. As mentioned during '22, you can see indexation growing into our top line with the normal contractual delays, which gives us today a very nice like-for-like rental growth of 6.6%. And above this, the potential for further growth excellent with our contractual rents still 8% lower than our ERVs, but everybody has to accept this new reality.Higher prices, less new supply and this takes time in decision-making for our clients and for the business cases, but no worry. Meanwhile, we can invest further in the rollout of our PV program in order to be able to implement our energy services to our clients on our existing and new sites. So those very good operational metrics are indeed also supported by our balance sheet. But a fully hedged and liquid balance sheet with a loan-to-value of only 36% and a net debt to EBITDA of 7, even when yields come down a bit.Our net initial yield in Western Europe is already at 4.7% and in Romania above 7%. So even when it still comes down a bit, we can absorb it. So we are ready for markets to reopen. We already and we stay ready for the new reality and in the meantime we take care of our internal value creation. And indeed, we had not the idea of going through the presentation since it is, let's say, all clear, but we would like to go to Q&A.And now that we can hear each other, it will be more easy and we are open for your questions.
The first question is already coming from Frederic Renard from Kepler.
Yes. So I had already Mickael on the line this morning, but a few follow-up questions maybe. Can you comment a bit on the search for land in the current environment? Still something you are tackling and do you see some very sharp repricing in the land bank across Europe, any more than that?
No. Land stays very scarce, Frederic. And I would not say that the land price has come down. On the contrary, we have, let's say, if there is sometimes a piece of land for sale or there is a tender like, for example, there was a deal, it was until in Q1, well, then prices were stayed very high. And it was, let's say, very difficult to get land.So the new land, the search for land stays there. And if we can buy land at, let's say, at the right price, we will absolutely do it. But that stays very difficult. And we don't see any prices come down of land on the contrary.
But once you expect the price to come down a bit, considering the high cost of capital today, it will be logical after a search nevertheless as you're there?
Yes. But let's say what -- I think market prices of land will not come down, because I'd say there are also end users who are calculating different. But if one thing changes is that, let's say the last 2 or before the change of the cost of capital, I think some developers paid the land price, plus they shared a part of their development gain with the sellers of the land. And they paid, let's say, land's price plus a kind of a development margin, a sharing of the development margin and that has stopped.But the land prices on this, they stayed and indeed, they did not came down nowhere and in no places at all. So because, yes, you can say it has to, but no. It's not possible because land is so scarce and then there is always somebody if there is something available who can afford it. But let's say, paying land price plus development margins, that stopped.
Maybe another one on bank financing. There's been obviously a lot of noises surrounding bank financing and the availability of financing in Europe. You have -- and you are exposed to a lot of banks, so maybe you have a good relationship also with those banks. I wanted to know if you could comment a bit on the appetite of bank lending today in the market.
I'll let Mick answer that.
Yes, it's true that in general, also, apart from the bond market, which changed last year, also the banking market has changed the credit cycle there. I think, in general, when you are today a large company and in a good subsector in real estate and having good local access to your home lending banks, then you're in a good position. And we don't foresee with our -- also with our BBB+ credit rating. And for the lending banks, we don't foresee any issues in the refinancing or even in funding further financing in the banking market, but excluded.In general, there is a change in credit cycle and banks are becoming more cautious. But as I said, it is -- they are strong. There is a strong divergence in the countries, in the sub-segments and in the type of banks. But for us, we foresee that we can still have a good access to bank financing at a decent cost.
Maybe a final one for me. I see the vacancy rate where or it's still very low, I fully agree. But in the Netherlands, it went from 0.4% to 1.2%. And if I look back until Q4 2019, it has never been that high. Well, if you know what I mean. Is there a specific reason for the increase? And do you expect the vacancy rate to trend upwards or just, yes, for occupancy for you?
Yes. No, indeed, it's all relative, it's all relative. You speak about one side of 20,000 square meters in the Netherlands. Let's say, there have been one client in Belgium went bankrupt, a client of 10,000 square meters in Belgium who went bankrupt 2 weeks ago. And then there is one building of 20,000 square meters in the Netherlands, which becomes free now. And indeed, we are, for both sides, we have -- let's say we are in negotiation with different clients.And let's say we hope that we can re-rent it as soon as possible. But let's say it's not a structural trend. But indeed, we have a portfolio of 7 million square meters. And there will always let's say, somebody who will leave the building or who has changed or who -- so because we have a portfolio with different ages, different timings, there is -- and we always have 10% to 15% contracts, which are coming at renewal every year. And there is always something to re-rent and there can be some, let's say, mismatching between a client leaving a building and a client entering a building because, yes, you can always not match it perfect. But there is no fundamental trend downwards or indeed, it's a normal way.
Okay. And maybe if I may, just the last one. On the 6.6% organic like-for-like, is it a percentage of that 6.6%, which came from -- on reletting above the latest lease contract?
Yes. I think it's -- so of the 6.6% like-for-like growth in Q1, you have -- the bulk is, of course, related to indexation and 50 basis points is related to increase in occupancy rates and reletting split equally, so each 25 bps. So we got a couple of units which were relet at 10% higher rates. But yes, as the occupancy is very high, it's limited of course.
Then the next question is coming from [ Otto ] from [ JL ].
So new identified investments are only EUR 55 million, including solar. Can we expect this number to remain low for the rest of the year? And hence, the external growth will be more limited in 2023 and 2024?
I think that's too early to say. It depends on let's say, today, the market is frozen. So everybody waits, let's say, until stabilization of the interest rate for which first we need to think -- first, we need to have a view on where inflation goes. Then we can have a stabilization of interest rates and which means then the cost of capital.And then I think markets can reopen and people know what the cost will be and then they can, let's say, invest knowing the cost of capital. So staying that this will continue during whole '23 and '24 is, I think, too long. But yes, we'll have to wait for when the market comes open. But in the meantime, indeed, we continue, like we mentioned in our -- in the last -- in our ABB of November that we will, let's say, bring our energy investments first and that we take them now first in the meantime while there are less other investment opportunities.But of course, we will continue by doing, let's say, further our own developments on our land bank. And if markets open, we can also further invest. So -- but it will take a time. But saying that it will be, let's say, the same for '23 and '24, that's I think a long view. But let's say, we think that it can be that markets should be able to reopen at the latest in Q3 and Q4 after summer.
Okay. And can I ask another question if possible? Do you have an update on the expected abolishment on the -- of the Flanders solar subsidies?
No news further. There are still fights in the Flemish government.
Yes, what we can say about that is that for some of you who know already this because it has been in the news flow in latest weeks. So the Flemish government is still aims to push through and administer of energy [indiscernible] still had the ambition to push this through the abolishment of the green certificate schemes starting as long 2024.But now there is a discussion within the coalition, within the government about how robust it is from a legal point of view and how much collateral damage there would be. And that is the ongoing discussion. And further, we cannot comment on that, of course. But it's, let's say, actually a lot in the media because they are discussing about it right now as they are also further finalizing and adapting in function of comments and discussions, the draft legal proposals. But there is still a lot of fuss about it also within the coalition itself.
But no decision yet, no final decision yet.
And then the next question is from Wim Lewi from KBC Securities.
My first question would be on the yield expansion. We saw that as last quarter, the Netherlands were again, hardly hit. But now we see also some yield expansion appearing in Belgium and also, I think, a bit of acceleration in Romania. Do you think that's a lagging effect so that they will catch up what happened in Holland? Or are there other dynamics that could kind of make the yield expansion lower in the area?
No, I think it's -- let's say, the Netherlands has always been a more liquid and, let's say, a bigger and a more professional market. So they are always a little bit before. And there -- if things happen positively or negatively, they act faster and Belgium is always following. Belgium is, let's say, more a follower because also there is, in general, more -- less liquidity in the markets and less players. So it's Belgium is more following.
And the yield was also the lowest in the Netherlands to start with it.
Yes. And indeed, the yield was the lowest in the Netherlands.
And do you have some expectation, let's say, for the remainder of the year or the first half?
Yes. It's -- what is happening now is in tune with what we said you at the start of the year, at the start of the year and we reiterate that. We said that when the cost of capital moves towards 5%, then acquisition yield should be in the order of 5%.There is not a lot of liquidity today in the market, still a lot of high bid-out spreads. But there's still a lot of interest in our -- in the logistics segment and we have seen some first deals at 5%. But then with 5% acquisition yields today, you get 5% initial yield plus a robust index cash flow plus ERV growth potential. So that's not that bad at all.But -- so therefore, we expect still that our initial yield for Western Europe move from 4.7% to 5%. But also that on the other side of the equation, that's the ERVs continue to grow further. And that's exactly -- that's the effect of what you have seen in Q1.
Okay. All right. And then, just a small follow-on on your earlier comments that you're waiting for the market to reopen. And then you talk about own developments. Can you say anything about potential asset sales in the market, so more like blocks that come from real estate funds that are distressed because of refinancing and higher interest rates? Is there anything moving? Or do you see like -- okay. And do you see a time line on this? Is this like a couple of quarters away?
We cannot foresee when others will be distressed or not. But let's say it takes time. Real estate is a sector where it goes slow. And let's say, most of -- even when you are in distress, the warehouses are filled, they generate cash flow. So even banks, let's say, they wait or they will see what will happen in the future.And in the meantime, they get cash flow and they can, let's say, use that cash flow in order to pay down loans. So I would say distressed, we have not seen it yet. And even when there is -- when some funds have too much debt, they can pay back in the meantime with existing cash flow, because the warehouses, the occupancy rate in general of the sector is very high.So we don't see anything yet. Can that happen somewhere in the future? Yes, but not for the moment and let's say, not the funds nor the banks are today in a distressed atmosphere about the logistics sector.
Okay. Can I summarize it that if we see occupancy rates go down that that would be a positive for you as that would bring opportunity to buy distressed assets at lower prices and you have the balance sheet to do it?
Yes. But I think saying or hoping that, let's say, in general, then you need a real come-down of the occupancy rate, I don't think so. Because, yes, you can have it in a specific portfolio, because a specific client goes, for example, bankrupt. And then I think bankruptcy is more -- it's more likely to happen than just really a portfolio coming down in occupancy rate.So I would not hope on that. But yes, certain funds, they are closed funds. They are -- or if they, let's say, with high -- with not enough equity and with lower ICRs, they will have to sell, but even their banks will give them time. So I would not really wait and say, by mid of this year there will be much more empty buildings. No, I don't think.
I think it's that -- we think that the trigger for somebody selling assets and therefore, not always in a distressed situation would not be the performance of the assets, which we believe will continue to be very good along the cycle. But it will be more like an event of liquidity, lack of liquidity, for example, when they need to refinance at 4%, 5% and they have assets in their books at 4%, 5%. And then they need to put in more equity or they cannot make the equation work anymore.But for as long as everybody still has financing, it's being on debt. And the assets are performing well, then there is no trigger. And we don't think that solar C rising LTV will here be a trigger. And that's also what we see with the banks, because the banks have other precautions on other sub-segments in real estate than in logistics, for example. And then it will take some time for funds in logistics for needing to sell probably when there is an event of a lack of liquidity somewhere in the future. But we cannot forecast that.
There is too much confidence in our sector from the banks. That's not good for us.
Okay. Then [indiscernible], the floor is yours.
Yes. In fact, the question was already answered by Uwents and it's always the same on the project developers that are maybe in, yes, less -- or maybe more stressed situation, but okay, you've answered that.
Okay. Then we continue with Saravana from RBC.
My first is on build costs. You say that it has stabilized at a high level. But seems like some of your peers suggest costs are actually coming down. And I appreciate market mix may have an effect and what wages are still going up although that's the case everywhere, but it will be good to have a bit more detail on the components of build cost inflation and what you're seeing that's kind of stopping it falling further for WDP?
Well, I think building costs are, let's say, for the moment, I think for the moment, we get, again, fixed prices and fixed timings. The pipelines of the construction firms are, let's say, coming down, but saying that there is today a real cost reduction, that's not the case yet. It's stable. And there are some elements where, let's say, which become cheaper. But on the other hand, there are also still elements and parts which become -- which are still at a very high price. So globally stable.
Yes. And I would even add to that that you are fully right that from a normal economic cycle thinking when you have more available capacity and reduction in order books of the construction firms and also much lower volumes in all sectors or in all subsectors, you would normally see that come down. But the thing is that in the raw material prices, we get mixed signals on several components going up, other coming down. So there is a mixed view. You have just had the other part. The other half of the construction costs are wages, which has gone up by plus 10%.And therefore, we are seeing today as we procure 500,000 square meters per year on average. We cannot make a statement yet that they will come down for the remainder of the year. It could be and in normal cycle thinking, you would expect it, but it's too early to tell.We don't see it on the ground yet. But what could happen is that after COVID, there has been a lot of supply chain bottlenecks and there everybody wanted to recover something which they lost during COVID and they all increased their margin. Perhaps that can be lowered again in an economic recession. But it can have for us a positive effect on lower pricing of construction costs, but it's still a bit too early. But nevertheless, it will solve a lot of our headache in the profitability of the projects, of course.
Right. That's good color. My second question is around the projects from the construction. Just wondering if the decrease quarter-to-quarter year-on-year, purely indicative of being more selective on developments to start and the focus shifts slightly more towards solar projects? Or is there a reason to expect a ramp-up in staff later in the year?
Well, it's a bit of combination. And the fact that we have lower volume of EUR 25 million only for Q1 is a combination of the fact that we said we need even more focus on profitability over volume. Then also Q1 is also typically the start of the year, which has automatically lower volume because then all projects are being more initiated for negotiation. So it's typically a lower volume quarter.And as Joost also explained during the beginning of the call, is that you also have the effect of the fact that there's -- the market needs to adapt to the new reality and its current high building costs, then we need to ask even higher rents. And that's something that needs to be still also absorbed by the market. And there are projects. There are opportunities.So our business developers are negotiating with nice projects in all countries. But also that is not only the question of profitability, but also the question of how fast can a client in this type of uncertain environment make a decision on supply chain. And that will take some time.
I guess it's more about, let's say, let's take the year-on-year decrease for Q1 projects under construction. And should we expect the year-on-year decrease to soften as you go through the year and a ramp-up in that term?
Yes. But we have also set at the start of this year, that's our growth plan and throughout '25, which was originally built on EUR 500 million volume in predominantly new development projects per year to achieve the EUR 1.50 EPRA earnings per share target. That was -- that we would build another part towards that.And with the bulk of lower investment volume targeted now at EUR 250 million versus the EUR 500 million. But with a more balanced combination of external roll-through developments and then also more internal growth to indexation amongst others and more focus on an accelerated deployment of profitable energy investments.
Now that's what we mentioned that the full year result that the road to the EUR 150 million will be different and more internal growth and less external growth than, let's say, 1 year ago initially foreseen.
Yes, yes. Got it. And then finally, on the solar investments. I could see the pipeline is 90 megawatts currently. How much do you expect to complete by year-end? Is that something you're able to estimate currently?
That should be half of it, half of it.
I missed that. Can you repeat that, please?
It should be -- half of it should be completed this year and the other half, early next year.
And then, we have a few more questions in the chat. The first question is with current indexation at 6.6% already, while we're guiding for 5% rental growth for this year, do we expect that our guidance will increase?
Yes, we have made that analysis, too. There, indeed so the indexation component in our like-for-like was this quarter 6%, but do not forget that inflation as it is projected today is declining towards the end of the year based on the inflation expectations more towards 4% towards the end of the year.So we think inflation and the indexation component in our like-for-like will peak in Q2 and it will then come down. And yes, it could be that we end somewhere between 5% and 6% for the purely indexation component, whereas we guided for 5%, it could be that it's between 5% and 6%. Will that leads to an increase in our guidance? No, because on the other hand, we also have then the slightly negative impact from the decline in energy prices at the start of this year versus the expectations at the start of the year.
And then the next question is coming regarding the CapEx development capital that we guide for this year. Is it fair to assume around EUR 400 million in 2023?
That will be more like, let's say, on the prior plan, it will be EUR 300 million, EUR 350 million, plus EUR 50 million from the solar, yes. That's in total, yes.
And then we have a final question on our EPS. Is there any seasonality in our Q1 EPS when we multiplying Q1 [indiscernible] for year funding at EUR 0.11 below the full year guidance?
That's logical. There are 2 elements. So in IFRS, in IFRIC, we need to reflect the full net charge. So also the part we cannot recharge of the real estate tax in Q1. So that's fully reflected always in Q1. So that's due to IFRIC '21. That's a seasonal effect in our Q1 results. And also note that we have the seasonal effect of the solar income, which is most pronounced in Q2 and Q3, so which is less -- we have less [indiscernible] of course, in Q1 and Q4.So it should look actually at the full year guidance as a whole. And we are perfectly on track for that full year guidance for which you can see all the details in our annual report with also the details on the solar panel income.
With that said, we don't have any more questions.
So a new last question that's popped up or in the chat or in hands, if I look around, I don't see any new hands or new questions in the chat. No. So then I think we can close it here.And first of all, I'm sorry for the technical problems in the beginning. But let's say, at least we were flexible that we could answer all your questions. And we are still open for further specific questions during the day and the next days, of course.But we can say, in general, that we started very well in '23. And indeed, like mentioned, with the full year results, we still see the EUR 150 million as a final result. But the way to the EUR 150 million is different and where we had initially foreseen that it would be still driven by external growth and a preparation of internal growth and internal growth for our next plan.There we say that we had to change those plans and indeed today, the biggest part of our growth comes from internal growth, which is, of course, also very interesting and very good because it needs less CapEx. And that indeed, besides this, there is still external growth, but there -- today, it's more -- we can more rely or we have to rely on internal growth and then a little bit less on external growth. But that is already what we mentioned in the full year results that we would invest less in external growth and more in internal growth and specifically in our energy service.So -- and that's the way we continue to create value for our clients and for you, our shareholders. Thank you very much and see you soon.
Bye-bye.///Thank you.