Warehouses de Pauw NV
XBRU:WDP
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Warehouses de Pauw NV
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Good morning, everybody. Welcome to our heads-up on the Q3 results. And in this, I think, I can start by saying it's going good with WDP and our beloved logistic real estate sector, even in this turbulent macroeconomic environment with rising interest rates. I think I can say -- and we all -- that we delivered a perfect report, operationally and financially.
Operationally, the highest occupancy rate, ever combined with a permanent delivery of around 100,000 square meters of new pre-let developments every quarter. All of this driven by a sustainable broad demand for warehouse space from inbound industry over outbound omnichannel to the more cyclical demand. The supply chain, even under pressure stays crucial.
Financially, all of this is supported by a strong and robust balance sheet with a loan-to-value below 40% and a net debt to EBITDA of 8.5, consisting out of long-term credit facilities and long-term hedges, combined with a very strong liquidity covering 24 months of committed CapEx and debt maturities. This generates altogether an inflation-proof cash flow hedged again rising interest rates.
And looking forward, I think we can say more and more, it becomes clear to us that the plus from our growth plan is really becoming strategic, the power of the existing portfolio and WDP energy. For example, a new letting in Lokeren last week of an old printing house into a new strategic future-proof industry house with stow Robotics, a warehouse automation company with an experience center and R&D center, a production site and adjacent offices and also WDP Energy, our new business line, by which we will first enlarge our green electricity production capacity in order to optimize it afterwards and to optimize the use of it in the second phase, like, for example, with our green mobility hubs.
So we are full in track for our short-term EPS of EUR 1.25 for this year and even more important, EUR 1.5 for 2025. So this is for me a short heads up on our results. And then before giving the word to you for Q&A. I think we will first elaborate by ourselves a little bit deeper on some key investor topics, like, first of all, the markets and the developments in the market, the profitability of our new investments, then the inflation proof, cash flow profile, our balance sheet and then, of course, the strong portfolio and talent basis.
The market, what do we see in the markets? Well, I think we can say that we still see a really very strong demand over the sectors and for existing and new buildings. It is indeed not only focused anymore on the outbound omnichannel, there -- let's say, there we have seen enormous investments during COVID and I think those investments normalized. But for example, there are still a lot of investments in food, e-commerce.
On the other hand, since the end of corona, we added at the inbound side all kind of structural strategic demand from, for example, industry companies who are really thinking about strategic stocks. The globalization has come to an end, and we speak about continentalization for the moment. And therefore, people need stocks that they can guarantee delivery to their clients.
People are thinking reshoring, stay shoring, so their strategic thoughts makes also the supply chain crucial, and now, let's say, at the start of the recession, we also get extra demand due to overstock and due to the more cyclical driven demand. But normally, let's say, our warehouses are running full during crisis, but now they are already full before recession.
On the other hand, we also see that, and we think that some companies who are really thinking about strategic processes and strategic supply chain products and investments that they could, let's say, think a little bit longer and postpone a bit there -- and think longer about their investments and that specific strategic big investments could take a little bit longer during -- due to the recession. But globally, we have to say that the demand is still there, and that's the basis of our business.
Concerning profitability, that is indeed, let's say, it was one of the more challenging points over the last months. First of all, we had an increase of the cost of new products, the construction costs, but let's say, there -- after an explosion in Q1 and 2, there we see now stabilization and we can get fixed prices again at a high level. but we feel competition again, and we feel that the pipeline of construction firms come down.
On the other hand, indeed, our cost of capital has increased, and so we have to go with that. And that is also what we do, we monitor it permanently, yes, we started in our strategic plan, the reserve. We think that we can get 5% and 7% on our own pre-let developments, 5% in Western Europe; 7% in Romania. And then, let's say, step by step, we had to adapt those profitability requirements based on the macroeconomic evolution and the rising cost of capital.
And then we went from 5% to 7%, up to -- from 5% we went to 5% plus 7% indexed, as from signing then [indiscernible] Percent higher. And let's say, today, we are at 6% in Western Europe, 8% in Romania. Also indexed as from signing and also, let's say, we adopt our investments, and we look to the most profitable investments. And so they're also one of those extra investments we can do within the existing portfolio are the investments of solar panels, which has a higher profitability since we have a higher IRR and yield on cost.
Mick, up to you to explain a little bit more about the balance sheet.
Yes. And first of all, on the inflation-linked cash flow profile. So that 2 components are obviously important, our rental income and our cost base, mainly the interest cost. So our rental income is inflation linked. So -- and that's we can show also in the like-for-like rental growth, which is increasing during the year, of course, because of the acceleration of the inflation and also due to the timing effect, for example, like-for-like in Q1 was 2%; Q2, 4%; Q3, 4.5%; Q4 will be a bit more than 5%.
So in general, at the like-for-like rental growth of what you saw in the 9 months of 3.5% should end the year at around 4%. But what's more important is that we will have an average inflation throughout our countries and portfolio of 8%, of which this year, of which we can contractually capture 6.5% and so 4% due to timing effects, we will show in the results in '22. So I think there -- at these levels of inflation, we can capture 80% of the inflation to the indexation linked contracts with our tenants. So the revenues are well protected.
And also important is that ERVs are rising as well. So we believe it's structurally capturing that inflation. And on the cost side, well, our debt is 86% hedged and that will even grow further towards the year-end. And with -- for a long duration of average 7 years in line with the end duration of the leases. So we have a good asset liability match.
And also in the first 4, 5 years, we have only limited maturities in the hedges, so we can feed through most of the indexation of the rental contracts through to the bottom line and will only have a minimal impact organically speaking on our cost of debt due to rising rates. So that's first on the inflation-linked cash flow profile.
Then also on balance sheet strength and liquidity, which is critical in a certain macroeconomic environment. There LTV at 39% should -- based on the current portfolio values declined towards 37%, 38% in Q4. Net debt-to-EBITDA, 8.5% should also improve towards even due to mainly the cash generation in Q4. Liquidity is strong.
You know that liquidity is equally important to us at the balance sheet. You can have a strong balance sheet, but you need to have a liquid balance sheet. And so there, we can, like you also mentioned, cover all our committed investments and all the refinancings for the next 24 months, and that's obviously excluding any potential impact which will come, of course, from the cash flow generation and scrip dividends and also excluding any refinancing of loans and for -- at '23, we foresee no issues because we have already credit approved term sheets for all the refinancings for '23.
So this should be -- likely do normally be finalized by year-end. Then on portfolio values, yes, there, what the value is in the first 9 months and then specifically in Q3, you saw for the first 9 months, we -- it reflected a value uplift to the portfolio of plus 4%. The main driver was obviously the rising estimated rental values of plus 6%. And what happened in Q1 and Q2, they reflect a 2% increase in ERV, and that's, likewise, they increased the values with 2% in Q1 and Q2.
And in Q3, what they did is they reflected another ERV rise quarter-on-quarter of 2% but they built in then some buffers by slightly increasing the yields and keeping value stable over the quarter. And as a result and because of our income that is growing due to indexation and the yields increased from EPRA Net Initial Yield from 4.6 to 4.7 over the quarter. And we can also pointed out towards the still low value per square meter because the global portfolio, that is a blended figure, is still valued at below EUR 1,000 per square meter fair value at EUR 950 to be exact, and that is roughly in line with where we see the replacement cost of the portfolio.
Then last point, a question, which also arose during our many conversations with investors analysis, okay, what about your tenant base in a recessionary environment? Well, clients are generally in good shape, paying well. And yes, supply chain cost in general is rising, but do note that the biggest rise is coming from transport and labor. And what we see it, we mean, like we did in COVID at times. We made, again, an extensive analysis of our client base and for us, the key risks are in sectors that are sensitive to recession or have high energy costs and limited pricing power in combination with a weaker financial profile. Now most of the tenants are really large enterprises. So if you would combine this data, weaker financial profile and then either recession-sensitive or sensitive to high energy prices, you would end up with around 5% as being screened on for watch list as a higher risk.
It's not that they are not paying today. No, they are paying. And these are, let's say, how we identify the risks in our portfolio. It's mainly in the SME segments. And for example, 2 companies that were on our list and where we saw some difficulties in their operations, and starting difficulties for payments, one in Romania and one in France. We proactively changed them and terminated the contract and released the space.
And also, one of our bigger clients made a very interesting comment that they indicated that if there would be smaller companies on logistics -- good logistics locations falling bankrupt, that they would be ready to take them over. Why? Because of their personnel, because there is still, for them, a shortage in labor.
So I think that's -- these are the main investor topics we would like to address, and we are now fully open to the Q&A. You can either raise hand or put your question in the chat box and Alexander will be our moderator.
The first question is from [indiscernible]
I had a question on the SEDIMMO deal in Tournai. So there, you announced it fully as an acquisition. Can you give maybe a couple of updates. First, just how you feel about the strategic logic, what about the yield? Is that in line with kind of the guidance overall for acquisitions? And then lastly, how should we account for that? Because I think still a part outstanding as a contribution in kind.
Yes. First of all, we, like I mentioned in the press release, I think it's a strategic one for us since indeed, let's say, it fits perfectly in our strategic plan and in our geographies, let's say, in Wallonia, there are 3 main logistics hotspots: Liege, Charleroi, and Tournai. And let's say we were active in Liege, in Charleroi but not in Tournai. And Tournai is up a turning point between the Lille area, [ Le Parc à, ] the [ Flemish ] area and the Walloon area. So 3. It's the crossroad of 3 strategic regions of WDP, and it's really in the corner of 5 highways. And therefore, let's say, we were not active there. And then we could, let's say, not buy 1 building, but different buildings from small buildings to big buildings.
And so that was, let's say, we could buy a portfolio on that imported hotspot. So that was, let's say, the strategic rationale on the yields. There, indeed, it is, let's say, it is a contract, 12-year fixed of around 4%. The deal we made and indeed, we could do him by a contribution in kind. The first part is done in the last week of September. And the second part, when the existing construction will be finalized, and so leasings come to an end, then we do the second part of the contribution before the year-end.
Yes. And also, it's the 4% yield -- initial yield is a fully indexed 12-year contract, triple net and -- which was at that moment, in line -- fully in line with the implied yields on WDP. And we can also improve our yields by, let's say, around 80 basis points by adding solar panels on the roof. And the second part of the EUR 120 million deal, so about EUR 53 million is scheduled to be finalized through, again, a contribution in kind before the end of the year, as it is already publicly announced.
Maybe just last one on that, is that, going forward, do you see more kind of the contribution in kind deals, also because they're beneficial to the debt ratio? Is that kind of -- could that be like a strategic option for you?
It's not a new strategic option when we do it already 20 years. And I think we did every year, at least one contribution in kind over the years. So yes, indeed, we used it and we will stay using it at our interesting deals and way of growing by -- yes, it's the best moment to add new capital as indeed by direct acquisition. So for us, it's really a good way to go further.
Yes, it's a tool in the toolbox to add to your equity with add-on equity and with immediately yielding assets against that. So if we can do it, we will continue to do it absolutely.
Another question is from Pieter Runneboom from Kempen.
My first question is on the marginal cost of debt. Could you maybe give some additional color here, especially maybe the difference between bonds, bank debt and duration?
Yes. The swap rate is across the -- the duration across the curve between 1 and 2 and 10 years, that's around [ 320. ] And yes, that would take us to 4.5% to 5% depending on the instruments.
Okay. That's clear. And on the double-digit indexation letters, which you've been sending them out to [ Dennis now ] for a couple of months, especially in the Netherlands. How do tenants respond to this?
I think, yes, they are -- let's say, it's our contractual -- it is contractually foreseen. And let's say, most of them accept them. Some of them, of course, are discussing or are trying to negotiate them, but let's say there we are helped by the rising ERVs around the corner and the alternative, let's say, is going away or looking around, are my rents too high and then they have to see that since most of our rents are, let's say, not at the highest levels, that if they look around and if they look at the broker reports that they're even indexed that they still have lower rents than the market rent...
And that is fundamentally different versus, for example, 10 years ago, that now ERVs are rising. And also, there is no availability because in all our markets -- geographical markets, the vacancy rate is below -- well below 5%, and there are no immediate availabilities. And moving is also a big risk, not only because of CapEx, et cetera, because -- but also because you would lose your labor force, that's a comment often made by our clients. The buildings are really strategic.
Okay. That's clear. And now...
But it is clear Pieter, that the entire cost of the supply chain has risen substantially and that will lead into margins of our companies, but it's general thing.
But even there, rents and the total rent is still below 10%. And the most important elements of the supply chain are still transport costs with around 50% and labor cost. I think those 2 together still...
60% to 70%.
60% to 70% of the total supply chain costs.
Yes. Okay. That's good. And last one from my side. I believe you organized the procurement for energy for circa 35% of the portfolio. Are there any issues here regarding passing on these high energy cost to tenants?
Yes. Your question is because we procured for around 35%? Yes. No. It's -- if they have to do it themselves, it's the same cost, this market base. It's -- we share that with our tenants. We organized a tender. We also do it with the external advice from consumers to achieve the best possible price. But the reality is that, yes, during COVID, we signed some longer-term contracts to protect clients from rising -- or to benefit from the low prices at that moment. But I think now they have expired and most companies, even the most advanced companies within our portfolio who procure themselves and are really advanced with energy procurement teams. In '23, most of the hedges on energy or fixed-term contracts -- fixed price contracts will expire. So it's a general issue for everybody, also for us, all as individuals we will have to pay the price, and that's the price of the war, we will all pay.
Frederic from Kepler.
Yes. Thank you for the call and the specific topics you mentioned. I have a few questions on my side. Just on the electricity prices. Just wanted to know how the soaring electricity prices has an impact on your cash flow today and maybe for next year, how should we look at that?
Yes. So what you see is we will now have this year over EUR 20 million of income from solar panels and on that income from solar panels is around 70%, is based on the fixed price green energy certificates we received. So there will be no impact. And then 1/3 of that is linked to energy prices and yes, these energy prices are rising, so that will have an effect of a couple of million euro. And depending on the market, on -- where and how we sell, it is a net plus. But for example, in the Netherlands, when your electricity price is rising and you sell at a higher electricity price to the tenant or to the grid, then your green certificate price is declining. So there for you to be able to generate a stable return. So yes, we have -- so this year, if you would have it -- if you would make the analogy with like-for-like rental growth, then the rising electricity price this year at 1% -- the equivalent of a 1% like-for-like rental income rise. You see what I mean?
The impact of it -- the rising -- the impact of rising electricity prices this year in our solar income has the effect of 1% rental growth increase. So a couple of million euro [indiscernible] 1% this year. Yes, but in the future, we will need to see obviously how electricity prices will further evolve.
But it's not in the like-for-like.
It's not in the like-for-like. It's Just to make a comparison about what the effect is.
Okay. So it's not a lot actually, as you mentioned. Okay. And then maybe just to give some -- come back on the question, Pieter, on the marginal cost of debt, which obviously, as you mentioned, would be between 4.5% and 5%. Is it something you have taken into account for 2023, '24 and '25? Have you taken less in your -- or did you take less, assuming that rates will go to more lower level?
What we say about the business plan, in the growth plan, we had completely different assumptions. We know that we had a much lower cost of capital foreseen initially in our business plan, and we have development yields of 5% and 7%, like you just explained, but we had also much lower inflation foreseen. We had only as from '23, 2% foreseen, and in 2022, we had only 3.5%, you see, so what has happened? We are working towards the profitability targets in our growth plan. The EUR 1.50 EPRA earnings per share, yes, today, it has become more challenging to grow profitably through new investments, which is why we say we need to be more selective and we need to preserve our profitability. That means calibrate our investment returns in function of the macroeconomic environment and meaning also the increased marginal cost of capital.
So we need to calibrate our investments for this with that for them to generate a solid property return attuned with market reality and for them to generate earnings per share growth. But, no, that has become more challenging, and we need to focus more on profit even more than ever. Now we are sensitive to that on profitability. But the good things, like Joost explained, is that growing externally through new investments has become more challenging. But on the other hand, we have more internal growth opportunities because of like the example made by Joost on for the leasing to store, for example, that's also internal growth in the portfolio. You have a higher indexation level.
And we also try to accelerate our deployment of our energy as a business strategy, and that is how we cope. And in general, that's all these parameters, they have changed, some go in the plus, some are minus. And then -- but the outcome is that we work still and believe still in our ability to generate the EUR 1.50 in 2025, but there is no single path towards it. There are also different paths towards the EUR 1.50, but we need to cope indeed with that a new cost of capital, and we still have one pre-hedging instruments available if we can still do a debt transaction before here, we can use it. Otherwise, as of next year, it will be the new parameters like you just highlighted. The existing cost of that is very well protected.
And maybe last question on that. Aren't you afraid that at some point next year, you will have discussion on indexation. And, well, with the recession, most of the tenants will be it -- on the top line that they would say, look, we cannot do it anymore, it's became too high. And there is a risk that, at the end of the day, maybe the inflation link that you have will be a bit lower? In recession -- I mean inflation in a recession became...
Then it's more -- let's say, a price discussion about total price, yes, we can have price discussions. Yes, clients can come to us to ask a reduction on the price because the indexation is there. But yes, that is about the profitability of their way of working and let's say this can happen every moment. And like the small example this summer in France, in Northern France, in Roncq, yes, we had a client who could not pay his total warehouse invoice anymore. And then we said, okay, let's stop and we stopped the contract. And we, let's say, rerented it 15% higher than it. So yes, that we will see, and that can be a general discussion, but not an index discussion. I think discussion about energy and transport and labor are much more important for them in total.
And yes, you can have this type of discussions, of course, and especially in this type of environment. But -- and we will always go into a commercial discussion that it is assured that it is market based, so that we use the correct market values, and we have also contracts in place, of course, but everything needs to be market based. And there, we are also, like you Joost explained, supported by rising ERVs and limited availability.
Okay, and maybe a very last one, and you can answer just by yes or no, if you would be doing the same deal that you did in Tournai, Roncq. Today, would you do it at the same price?
We will do it again with the contribution in kind.
The next question from Steven from ODDO.
Of course. I have some questions to grasp where the market yields are going. So maybe one, what -- would you now be willing to acquire prime assets today in Western Europe and Romania, given the funding cost? Maybe second, also, where do you see pricing for single assets or portfolios, so in tenders maybe that you're witnessing today...
Can we take them one by one because...
I think, first of all, today, there is liquidity. There is no market. Let's say, the price in the nice theory between a willing seller and a willing buyer, the spread is too big, and there is no market. Market is waiting for, I think, first of all, stabilizing interest rates so that the cost of capital becomes clear. But therefore, today, let's say, there is no market, and we don't see any deals in the market.
It will depend on inflation and the cycle. And then the markets will -- and that's what you all know. The markets will have to find a new equilibrium, but it cannot find it because there is too high discrepancy and everybody is looking about or trying to assess what the new normal environment or stabilized environment will be. And your second question? Because we didn't hear...
It was about portfolios?
Yes. Yes, if you wrote, it also answered, because I was wondering if there are any tenders or anything today and what pricing you see there. Well, if there's nothing, there probably no pricing. Maybe one additional question on the yield. Let's say now, interest rates stabilize. You already mentioned the existing cost of debt. What kind of yields are you willing to pay also with the current inflationary environment? So let's...
That's really depending on file by file. Let's say, what is the rental level? Is it below market rents? Is it at market rents? Above market trends? Is there still an extension potential? Can we put solar panels on the roof? What is the location? What is the quality of the building? So let's say there is never just on yield. Also depending on the regions and if an opportunity to get into a region. So there is no one yield that we use, and it's really depending file by file.
Okay. Ask differently, the increase in the cost of funding that we're seeing. Would you add debt to the average yield or half of debt? Or is that too simplistic?
But we look always to an investment opportunity from a real estate point. So -- and then, of course, let's say I buy it, and then I give it to [ Mick ] and he will make his financial that put his equity and debt against it. But we don't calculate any deal, I can put -- or I can put debt or...
We try to have, let's say, for each individual investments we make even an acquisition or a development project, we have -- we want to generate a long-term fundamental property return that is to have a decent initial yield and also had capital preservation, do not lose money, and have a nice IRR over a real estate cycle, and that will really depend on the land value, reusability, the way we can enter it. Is it an off-market deal, et cetera. And then the aggregate of that, first of all, on each individual projects fundamental long-term property return. And then secondly, the aggregate should generate earnings per share growth in function of our cost of capital, of course.
Okay, clear. Then one last question on the market step, but I kind of mentioned maybe there are some distressed sellers somewhere in the market. Can you elaborate if you are aware that maybe some parties have some issues and then we can expect maybe some initial deals in Q4? Or is that too early?
It's too early, I think. And if you know distressed sellers, you can send them to us, we are always prepared to look at them. But for the moment, we don't see that yet.
The next question is coming from Alvaro from Exane.
Hello? Can you hear me well?
Yes, yes, Alvaro.
Just a few questions from my side. Back to cost of debt, which are the next refinancing you are currently working on? And could you share like examples, if it is in Germany, Romania, in terms of price and what conditions lenders are giving you?
For the refinancing, we financed -- so for the financing, in general, whether it is debt or equity, we raise our money at the level of the listed entity at the level of the group. And there, in terms of refinancings, so the refinancings we have been working on or the refinancings for '23, which -- for which we have now all currently approved term sheets and the price indication is not far from where we were. So it's only a limited increase of 10, 15 basis points on these bank loans that we should see. So there, the refinancing for '23 will be done by the end of the year with a limited increase. And I mean, yes, I've done further for new financing, the new financings, bank financings, we added, so that's really new liquidity that is available.
That's bank financing that was added, and that was also in tune with what we have done in the past. And obviously, there is still bank margins are also creeping up a bit more slowly. And yes, then the bond market is completely different than there has been, as you know, a major sell-off and the spreads are there once the other is a big discrepancy, but there is still funding available for us, and we try to optimize it in the best possible way. But for the refinancing, there is no issue and that will be for '23, done by the end of the year.
So -- but I'm trying to understand what kind of increase we are going to see? You are saying that the refinancing of 2022, it has been just a couple of basis points above your current cost of debt. Is that is because that is short-term debt...
That's in terms of the margin. So that's in terms of the margin, that's what the conditions. If you -- so if you take -- so '22 is already done, '23 will be also at a limited cost increase. And then -- that's on the margin. And then on the cost, on the Euribor itself because these loans are at Euribor plus credit spread, the one that unhedged today, and we'll have -- we'll see some cost increase, but we are hedged for 86% and it will even increase further towards the year end, so that we will only see a very limited organic increase in our cost of funding, let's say, max 25 basis points which we will see as a rise -- due to the rise in Euribor and a very limited increase in the rising credit spreads, so organically should be quite...
Staying around 2%.
Okay. On 2024, do you have a forecast of how your interest coverage ratio would look like with the current quoting you are getting from your banks?
It will still look in line with what we have today because like I mentioned, organically our cost of funding will not arise a lot. And in the meantime, our income is also rising organically due to the indexation.
Okay. So around 5x more or less?
Yes.
Okay. Next, on -- you were saying that growing externally is challenging. Can we assume EUR 400 million of new investments in 2023?
That's what we are trying to say that the business plan took into consideration EUR 500 million of volume per year. But now we say, well, it is more difficult to forecast that, and we want to emphasize our focus on the EUR 1.50 in 2025. And that is the most important thing. If we can do profitable investments for EUR 400 million then we can do them, but they need to be profitable and in tuned with our return hurdles and cost of capital -- and marginal cost of capital...
No growth for growth, investing EUR 500 million will not be difficult, but we want to invest profitable -- we want to do profitable growth. And therefore, we also think that the existing portfolio and our solar panels will be very contributing.
Okay. Last 2 on my side, scrip dividend, you will offer it next year. But if the stock is trading below NTA or -- I mean, materially below NTA, you will still offer it? Or you will try to pay a full cash dividend even can impact a little bit your loan-to-value and some credit metrics?
The philosophy is that we continue to offer a recurring optional dividends to our shareholders, like we've been doing for the last 10 years. That is the philosophy.
Okay. And the last one on growth, the 6% ERV growth more or less you are communicating to the market. It seems that it's very much driven by indexation. If we strip out that impact, how would your like-for-like rental growth look like? I mean, until we had this spike in inflation, realistically, you didn't have that much pricing power. So my concern is that if the portfolio at some point can end being a little bit over rented?
The portfolio. I understand what you're trying to say, but let me just give you a few metrics. So what we told at the start of the year, you had, let's say, ERVs -- let's say, for 1 year ago, you had ERVs slightly above our contractual rents. And then we said 1 year ago, we believe that now due to the rising tension in the market with rising scarcity ERVs switched off to rise significantly. We already see it in the market, but it is not really reflected in the ERVs based on which our portfolio is valued. And then in the meantime, over the last year, I think our ERVs have risen by around 10% in the last year. And then if we would have not had inflation, then we always said to you because then there was a question of the investment community, how fast can you then capture the spreads between contractual rents and ERVs you see on the market. .
And then it would take more along a business cycle to capture that because you would -- every time a contract, you could only renegotiate with the tenants then you would end -- when the contract would come to an end, so not at a break, but at the end, and you have around 10% maturing per year. So it will take a long cycle and a lot of renegotiations to capture that. But now the good thing is that we have inflation across the entire portfolio immediately rising into our contractual rents. And now based on what we currently have published, our ERVs are still 5% to 6% above our contractual rents today.
Inna from Petercam.
First, if I may come back on the question of Alvaro regarding the ERV. So broadly speaking, you would say across the broader portfolio is still 5% to 6% under-rented right now, right?
Exactly. Exactly.
Okay. Just more of a -- just also more of a question on your projects under development, you currently quote a yield of 6% mix. What is the development yield split between Western Europe and Romania?
It's in the presentation.
It's 5.8% in Benelux and 7.3% in Romania.
What is it in Benelux, sorry?
5.8% and 7.3% in Romania.
That's on Page 17.
Yes. And just thinking about what you've been saying on moving the development yields from 5% to 6%. I appreciate that -- yes, this is also a sizable step. If I purely take into account also your land position. How would you really see that evolving? Because I know Joost gave a couple of examples on the energy -- on the energy top-up for ex 80 basis points that you're able to secure. How would you see that moving around in terms of your strategy? Because I think it's still fair to say that Benelux is a very competitive market in terms of -- and the margins have been coming down a lot in the past years. Would that have an impact on your geographical strategy? Or would you really focus on kind of the opportunistic add-ons such as energy and where it would be able to secure that 6% development yield in Western Europe?
I think the competition will also change. And let's say, we go for profitability above quantity. And I think there -- and if we can do, let's say, now more and faster, bringing in -- bringing further here for our investments in the solar panels, then we will do it. We look to profitability, and we'll see where we can get the profitability. But let's say, we won't change our strategy. And we keep with, let's say, a core Western European investor with an add-on in Romania, and Romania stays -- will stay today below the 20% as foreseen in our strategic plan.
Okay. Then maybe one additional question on the market. Just to get a little bit of an idea of what you're seeing in terms of speculative development, and if those have started to come down already, I appreciate that was always more the case in the Netherlands than in Belgium. And effectively how you see the current supply dynamics in terms of the upcoming stock in the markets where you operate versus the demand pick up?
Well, indeed, in Belgium, there are almost no speculative developments. In Netherlands, there are some more speculative developments. But for the moment there, we see also our, let's say, colleagues, the developers hesitating and looking and seeing what they will do, depending on where the market goes, but the demand stays there. I think this is the most important, demand stays there. And for -- on the supply side, people are looking around or waiting a little bit before just moving and doing like there is like nothing changed.
And across other markets used, for example, looking at Romania, France, Germany?
Also -- there are also no changes. I think there -- let's say, there is only one who is really developing speculatively that CTP, always did, but now you have to ask him if he still continues. I don't know, but he is doing speculative developments as one of the only in the markets. But I don't see him do more or I think it's a little bit the same, but that you have to ask to CTP.
Okay. And last question on the commitment of new development projects. In terms of your minimum pre-let that you're looking for, does it remain a change? Previously, you were always at around 70%, if I recall correctly.
No. Let's say, we normally, we buy land speculatively and then we wait for a project. We prepare a building permit, and we start the project when we have a tenant. Just sometimes due to, let's say, efficiency reasons or technical reasons when you have a building of 25,000 square meters like, for example, the [ floor in ] Luxembourg. And when you rent 10,000 or 15,000 square meters, you have to build the whole building because otherwise, it's too costly to restart it. But let's say, we have -- today, we have no intention for any speculative developments just except when it is really technically needed for a part of it. But our pre-let developments were always, I would say, at least 90% of the total package. So much more than the 70%. We have always been...
Yes, the standard is 100, unless there is a specific reason for building efficiency, most of the time for already completing the entire building. That is actually the philosophy.
Francesca from ING.
Yes. On the loan to value, you guided for 37%, 38% loan-to-value by year-end, which I see as very safe. But considering the current environment, which is the loan-to-value level that you would feel comfortable not exceeding? Is still this in the range of 45% or we can say it's closer to 40%?
We are -- let's say, we are happy currently where it is, and where we have today and where it will be and it will be around 37%, 38%, and we have also already made a public statement that we will keep -- regardless of what happens, keep it structurally across all cycles at all times below 50%, but we will -- are overall symmetric and for the debt is the net debt to EBITDA, which is around 8x by year-end. And that is the reason also why we today have a low LTV because we did not leverage up on portfolio revaluations.
And then a final question from Andreas Brock from Coeli.
I just wanted to change focus for a second there, just take us to ESG. I know you haven't signed U.N. Global Compact. I would love -- we still would love you to do that. But we're very happy about the -- your science-based targets. And I was just wondering on the Scope 1, Scope 2 when it comes to reducing the CO2 emissions, that one exactly. The 50% energy consumption in corporate offices and also -- can we just talk about that in practice? How are you going to go about doing that? We love it. We just want to know how you're going to do it?
Alexander?
You mean Scope 1 and 2.
Yes.
Scope 1 and 2. Well, we invested. Most of the energy consumption, obviously, is at the headquarters and here at the headquarters, we have invested in the building, EUR 1.5 million in decarbonizing it. So we cut it off from the diesel and the gas because historically it was an older building and it was fully upgraded and renovated. And so we installed geothermal installation, so -- and with heaters. So again for the electricity -- it needs electricity to power it and the electricity is sourced through with the guarantees of origin from green residues.
So this building has been fully decarbonized and for the other offices we are moving towards, let's say, we have moved towards a lower carbon offices, which are based on the district heating, so we took that into consideration in the selection of the offices for the Netherlands, in Romania, and then obviously, we will need to further focus on reducing the footprint of our car park, for which we will do gradually, and we asked from -- this year, we only allow in the leasing contracts for the cars of our personnel, of our colleagues only minimum hybrid and if possible, electric. So no...
And will go further up to fully electric afterwards. But importantly that it is less than 1% of the total footprint because we, let's say, only 3 small offices and 100 cars, that's nothing compared to our...
Right at above the top and have it ourselves, but the most important thing and challenge will be to do it in our portfolio, within the portfolio and also for the procurement of the materials in the new developments and we are working on this. But this is gradual, of course, and we are -- let's say, we have already made serious steps in the energy and sustainability, but we are also hiring new people to do so because it's a tremendous amount of work, which we will continue to invest in that. And that's why we have also a dedicated team and substantial new hirings to realize that.
Wonderful. Thank you. We sold all -- basically all real estate investments last year, and we just kept one company, and that's you guys. And just -- it's the only real estate stock I can own in the world. So we are very happy that you also take [indiscernible].
And at this time, this concludes our Q&A. So I'd like to turn the call back to Joost for any concluding remarks.
So perfectly in time within one hour, 11:00. So thank you all for listening and all your good questions. We hope we give you the answer you wanted to hear, and we hope to see you soon again, live. And in the meantime, let's say, we are working further to all our strategic profitable plans.
Thank you all, and see you soon.
Thank you.