Aedifica NV/SA (AED) Earnings Call Transcript & Summary

Good morning, everybody. Welcome to the annual results presentation of Aedifica for 2024. We will start immediately with the presentations, but we use this opportunity to start the marketing of our Capital Markets Days that we will be organizing this year in Dublin, Ireland, on the 7th and the 8th of May. So if you are interested, feel free to reach out to our Investor Relation, Delphine, so that she can invite you. Now this being said, and I think by now we're well at 9:30 time that we should be starting. Let's dive into the annual results of Aedifica. As always, Ingrid, our CFO, will be presenting the financial results. After her presentation, I will walk you through the portfolio, and we will, of course, spend some time on the outlook of 2025. Sorry, we had a bit of a technical issue as usual when starting such presentations. So in a second, walking you through the highlights for 2024, I guess, most of you have read by now the press release. So we have today a portfolio with real estate value of EUR 6.2 billion. We will be talking a little bit more about how value evolved throughout the year. This portfolio has generated a rental income of EUR 338 million, so which is 8% more than last year. And it's actually also showing a 3.3% like-for-like growth, resulting in EUR 235 million of EPRA earnings, which is then leading to EUR 4.93 per share EPRA EPS, allowing us to pay the dividend, as announced, of EUR 3.90 per share. As you know, we are active in 8 countries, but exiting one of these countries, we will talk about it. Looking at the pipeline and the portfolio, you will find, as usual, a healthy 19 years WAULT, 100% occupancy rate pipeline that has made the turnaround, that we will talk about it, and valuation that clearly has bottomed out and started growing again. On the balance sheet, without any surprise, I think showing a quite healthy debt-to-asset ratio towards the end of 2024 with a strong credit rating. But these are topics that Ingrid will address, and I'm switching over to her now.

Okay. Thank you. Let me start by saying that we can present to you solid financial results. So we will start first with having a dive into the EPRA earnings. EPRA earnings increased with 7% compared to previous year. First of all, there is the increase in the operating results, mainly coming out of the increase in rental income of 8%. You can also notice that the EBIT margin has improved. So last year we reported an EBIT margin of 84.9%, which improved this year towards 85.9%. There's a slight increase in the financial charges compared to previous year. This is related to the fact that the average amount of outstanding debt increased in the course of 2024 and there's also a slight increase in the average cost of debt towards 2%. Thanks to the high hedging ratio of almost 90%, we can still keep the average cost of debt at a low level. Then we have the corporate taxes. So there you see an important difference with the previous year. It's merely related the difference to the impact of the FBI regime in the Netherlands. So in 2023, there was a one-off refund from the previous years of EUR 9 million. And in 2024, we received a refund of EUR 4.2 million related to the taxes that were booked and paid in 2022. So this leads then to the EPRA earnings of EUR 234 million or when we express it on a per share basis, it's EUR 4.93 per share. And you would exclude the non-recurring FBI refunds, we notice that the EPRA EPS increased from EUR 4.82 in 2023 towards EUR 4.85 in 2024. Then moving over towards the net result of EUR 204 million or EUR 4.31 per share. The main variances that we see here are all non-cash items. So first of all, the changes in fair value of the financial derivatives related to the fact that at the end of the year, the interest rates came down, so there is some negative change in the fair value of the hedging instruments. Then the big change this year is coming out of the change in fair value of the investment properties. As already mentioned, portfolio valuation has not only stabilized in the course of 2024, but we see that it is also slightly increasing, mainly driven by a positive valuation on our U.K. portfolio. Thanks to the strong operator performance in the U.K. Then there's also some impact in the deferred taxes that are related to the changes of fiscal regimes. So this year, we obtained the U.K. REIT status from the 1st of February, and that had an impact on the details that were booked in the past and that were reversed in the course of 2024. Then the increase in rental income, plus 8% on a yearly basis, there is the positive contribution coming out of the indexation of the rent agreements, the deliveries, and the acquisitions to the portfolio. You can see there is a small negative rent reversion. This is not related to the renewal of lease agreements that came to maturity that were at the end of the lease agreement. It's part of some minor renegotiations that took place in the portfolio and limited to a couple of assets. Then there is the impact of the disposals. You also see in this line the contingent rent is only a small amount, plus 0.4% -- EUR 0.4 million. In the total amount of EUR 338 million, the contingent rent, they contribute for EUR 1.4 million. Contingent rent is something that you see mainly in the U.K. portfolio. So there we have clauses in place that if the operators have a strong performance, that there is a possibility to have additional rental income. This is something that we have started to show on the separate line item, because it will have more impact in 2025 and I will come back to that topic later onwards in there. Rental income, so when we look at this on the like-for-like basis, you can see the increase of 3.3%, which we can split in 3.1% related to the rent indexations. Then we have the minus 0.4% in the rent reversion. This is also including the contingent rents. And the 0.6% coming out of the currency translation. When you look at the different countries, you can see that in Belgium and in Germany, we are slightly below the number that you would expect based on the inflation that we have seen in those countries. In Belgium, it is impacted by the rent reversions. In Germany, it is related to the fact that there are certain thresholds in place. So the indexation will only kick in once those thresholds are reached. It's something that we expect for an important part of the portfolio to take place in 2025. Netherlands, Finland, and Sweden, there most of the indexations take place in January. So the number, the like-for-like number has not changed in the course of 2024 and you can see that the U.K., despite the fact that there are floors and caps in place, so the floors stand at 2% and the caps at 4%, that we can report a like-for-like that is slightly above the caps, thanks to the contribution of the contingent rents. Our debt-to-asset ratio, as mentioned, 4.3%. We have a financial strategy where we say that we want to keep this debt-to-asset ratio below the 45% and we target or are comfortable with the situation around 43%. So this means that there is headroom on our balance sheet to, on top of the capital recycling that we are planning to take place in 2025, to add EUR 300 million to EUR 400 million of assets and still staying within the financial strategy that we have set for the company. Then our financial debt. We have a total debt portfolio of EUR 2.5 billion. Especially in the fourth quarter, we were active on the refinancing side, so most of the debt maturities have been handled for 2025. You can see that in the split of the financial resources that it deals are diversified financial resources, and we have access to debt capital markets as well as to bank facilities. We still benefit from a BBB stable outlook rating from S&P, and we are considered as being a strong BBB. The interest cover ratio is at a comfortable level of 6.2x, the covenant standing at minimum 2x. Net debt to EBITDA stands at 8.5x. Average cost of debt 2% and most of the financing is done on an unsecured basis. So we have very limited encumbered assets in the portfolio. As mentioned, so we have a well-spread debt maturity profile, and most of the refinancings have been handled for 2025. Post closing, we have also signed an additional extension of a loan agreement. So the main maturity dates for 2025 are now covered. The average debt maturity stands at 3.8 years, and we can cover our financing needs until January 2027. I've already mentioned the hedge ratio. So currently, we still have a high hedge ratio, around 90%, with an average hedge maturity of 4.4 years. Our financial policy is that we need to be hedged for at least 60% for the coming 3 years. But in practice, for the coming 3 years, we always have a much higher percentage. So what we will do now is start working on refinancings that are targeted for 2027 and 2028 to also make sure that there we can lock in some of the interest rates. So now I will hand over to Stefaan to give some more light on our portfolio.

Thank you. I will quickly walk you through some of the main features of the portfolio for 2024 and perhaps already looking forward to 2025. Now in terms of the segment breakdown of the portfolio, no surprises in '24. So we remain with a quite high focus of 86% on elderly care and senior housing with some 6% focus on child care centers, which is exclusively in the Nordics and mainly in Finland and 8% other care segments, which we still consider to be our playground where we can explore other healthcare segments that might lead to future business lines. So in line with previous years. There might be some news about the geographical breakdown. Now when you look at the slide and the graph, you will find that the 4 major countries still are good for 80% of the portfolio. And these are, as you know, Belgium, Germany, the U.K., and Finland with more or less equal weights, around 20%. The runners up in the portfolio still are the Netherlands, but also and even more Ireland, which is now standing at 7% and which is a growing market for us. But I think the real news this time is coming from Sweden, where we announced recently that we signed an agreement to sell our LSS portfolio in Sweden, which, by the way, completed before the weekend on Friday. So we've sold the 22 assets, and we are in negotiations, in talks to sell the remaining 6 assets that we have, which are basically preschools and 1 school. So we are exiting the Swedish market. To us, this is clearly a capital recycling strategy that we are following as we are convinced that the net proceeds of this divestment once invested in today's market will lead to a higher EPS contribution than is the case compared to when we're just sitting on this Swedish portfolio. So we are working on our cost of capital here. This being said, I think that the major news for us looking at 2025 is related to our tenants. What you see on the slide here is the tenant diversification. Once again, no major changes compared to the previous year. Clariane remaining our main exposure, but I'm signaling once again that our Clariane exposure is almost 100% on the Dutch and the Belgian market, where as you all know, there is still a sales process ongoing where Clariane might sell the Dutch and Belgian operations to a third-party. So we are, as is the whole market, waiting for the result of that process. Otherwise, no major changes here, but -- and I think that this is the most important slide, perhaps or at least one of the most important slides today, the operator -- health operator performance keeps improving in Europe. What we see on the slide is the underlying resident occupancy for 5 of the countries for which we have sufficient data made available by our tenants. You clearly see that in countries like Belgium, U.K., Ireland, the occupancy is now above 90%, which for the U.K. is a record high. And in countries like Germany and Netherlands, we keep seeing improving occupancy, now reaching 86% in our portfolio for the mature assets. So first of all, if you would combine these 5 countries and try to deduct an average occupancy over the 5 countries' mature assets, you would reach at 90% right now. A couple of things to be said here. When we look at the ramp-up assets, which are not in these numbers, also there, we do see an absolutely improved occupancy. So it's not just mature assets that are improving, but we also see ramp-up accelerating and getting to higher occupancy compared to the previous years. Like-for-like growth for the mature assets, you can see it on the slide, it remains quite important. And then maybe one comment because there's one for us rather important country missing on this slide, which is Finland. The Nordics remain part of Europe where operators really are not willing to be transparent today, although we are making some progress now in the Finnish market. But what we can tell you about the Finnish market is that 2 of our main tenants, which are Mehilainen and Attendo have published themselves that their operating margins in Finland are improving in 2024. And that leads me then to the next slide because occupancy clearly improving. But also as far as we can tell, operator margins are improving. The only totally transparent country here is the U.K., and we are showing you once again the rent covers that we see for our U.K. portfolio, which once again are showing a sort of historic high with 2.5x rent cover at the end of the third quarter 2024, but when we look back for 12 months, 2.3x rent cover. These are very high rent covers. We are working within Aedifica on the data collection from our operators so that we, in the near future, hopefully also can start mentioning rent covers for other countries. Today, we have 67% coverage of all of the assets in the portfolio in terms of data coverage, data collection from operators. But this is a number that we are willing and looking to improve in the near future. This being said, the U.K. is showing record high operator performance. But what we keep hearing throughout Europe from other operators and what we see in the numbers that they make public is clearly that margins are improving. I already referred to the Finnish situation, tenants like Mehilainen and Attendo, that are good for 24% of our Finnish portfolio, clearly communicating improved margins. We've seen some of the major French players announcing improved margins. And when we have conversations with some of the tenants that you have seen on the previous slides, we keep hearing from a lot of them that margins are improving, but even more importantly to us that they are now thinking back about growing. So the conversations that we have are turning once again more back to doing new business, adding new assets to their portfolios and our portfolio or joining in project development. So the market really is changing in that respect. Quick look at who the tenants are and not specifically the names, but the profile, no surprises there. 90% of our tenants are profit-driven operators, so the private market. We do, as I mentioned, see improved margins there. 6% of our tenants are social profit players, 4% are public players. I think that I've said this before, in the future, but we're starting to see more signs of it. We do see potential for growth in the not-for-profit and the public segment. Specifically in Finland, we keep doing business with the Finnish municipalities and/or care regions, and it will probably also show in our future pipeline. But we now also see in some of the countries where we have quite important social profit markets that lots of social profit players also start turning to investors like Aedifica to finance their real estate infrastructure needs. So it is once again a market that is becoming more promising. Quickly going through some of the other features of the portfolio. What you see on the slide, I already mentioned, the portfolio still is showing a quite important 19 years WAULT and a 100% occupancy rate. Maybe also drawing your attention to the fact that only 1% of our leases will come to an end in the next 5 years. So there is not a lot of lease renegotiations due to the end of leases in the next 5 years. Maybe going then to probably also another more important slide today is what happened with the valuation throughout 2024. Now starting with the fact that when you look at the situation end of the year, we are showing a fair value yield of 5.9%. If you're looking at the EPRA net initial yield, you will find that it's standing at 5.3%. But I think on the right side of the slide, and there the message is quite clear. Throughout 2024, we have seen that, first of all, at the beginning of the year, valuation was clearly bottoming out and stabilizing. And that towards the end of the year, we did see some marginal uplift in valuation. When looking at the countries or maybe, first of all, the whole of the portfolio, it means that for the 12 months, we've seen a like-for-like increase in valuation of 0.7%, which is mainly coming from the U.K. and the Netherlands. Countries that are still lagging a bit behind are Belgium and Germany. But when we focus on the last quarter of the year, also for these countries, you clearly see that valuation is now bottoming out and in the German market, even slightly positive, very slightly positive. Then some color adding to the development pipeline of the company. I think here, the message is very clear. We've made the turnaround in terms of projects that have been decided before '22 or early '22 based on the macroeconomic environment of that period. So these projects have now been delivered and are contributing cash flow for group, meaning that today we are focusing more at growing the portfolio again and refueling the development pipeline. Now what you see on the slide is that when I said the turnaround has been made, it's now reflecting in the initial yield on cost of this development pipeline. And we're now above 6%. So this is a territory where we want to be and hopefully even increase it slightly towards 6.5%. So there the turnaround probably has been made. The number of EUR 160 million is a relatively low number if you look at the recent history of Aedifica, but there we are now at the point in time that we clearly are looking to refuel the pipeline and expecting to see new projects being added to this pipeline. Projects that will be coming mainly also from Finland, where we are developers ourselves, but we're also expecting to see some projects in Ireland and perhaps in other countries in the portfolio, which is now leading us to the outlook. And then if we have a quick look at the numbers here, maybe let Ingrid do the presentation first, and then I'll pick up. Yes.

Okay. So this is our outlook for 2025. So first of all, we are expecting a rental income of EUR 355 million, an increase of 5.2% compared with 2024. This is based on an organic growth of 2.7% coming out of the indexation. So there in most countries, we are expecting that it will be around 2% or slightly above 2%. Like I already mentioned in the like-for-like, it will be somewhat higher this year in 2025 for Germany. And we also expect contribution of contingent rents. So the contingent rents that we consider as recurring, the amount is estimated at GBP 1.7 million is included in the organic growth of 2.7%, but we also expect in 2025 that there will be a catch-up on some of these agreements from previous periods, and that will have an impact of GBP 3.2 million. Then we have the increase in the EPRA earnings, EUR 238 million, so an increase of 1.6%. So how to explain the difference between the increase in rental income and the EPRA earnings? In itself, we are expecting that the EBIT margin will stay around 86%. And also in the financial charges, we only see a slight increase because the average cost of debt will remain at 2.1%. So the delta is coming out of the taxes, and it is related to the change of the fiscal regime in the Netherlands. For 2025, we are expecting that there will be an impact of current income taxes in the Dutch entities of EUR 5 million. And on top of that, we do not benefit from the refund. So there, you will have a delta of more than EUR 9 million impacting the corporate taxes. Debt-to-asset ratio by the end of 2025, based on the assumptions that you can see on this slide, is expected to be around 42%. So which are the assumptions that we have included in our business plan. First of all, we have the deliveries on the pipeline, EUR 110 million. We have the asset rotation, so EUR 190 million. This is also including the capital recycling exercise that we are currently doing with the Swedish portfolio. So the asset rotation is a little bit higher number than what we have done in previous year. We have also included an assumption on new hypothetical investments of EUR 250 million. And this assumption will be split between yielding assets and projects that will be added to the pipeline. On the yielding assets, we assume that it will happen a little bit more later in the year, so more in the second year half. The reason why we mentioned in the press release that the contribution of the new investments to the earnings is rather limited in our business plan, because of the timing. If they would come in sooner in the year or for a more important amount, then we will adjust our EPRA earnings. Another assumption that we have included in this budget is related to the currency. So you can see the EUR 0.87, which is a little bit of a conservative assumption if you look where GBP is currently trading. If we would stay around the current level, the EUR 0.83, that would mean that there would be an increase in the EPS of approximately EUR 0.06. We did not include in our business plan, as in previous year, an assumption on portfolio valuation changes. Based on those assumptions, we come to an EPRA EPS of EUR 5.01 per share, and we give guidance for the dividend of EUR 4 per share, which would mean a payout ratio of 80% of the consolidated EPRA earnings.

Yes. And maybe zooming in into 2 building blocks that you see on the slide here, the first one being the asset rotation. So the number that you see is relatively high, meaning that we do expect ourselves to see on a yearly basis, recurring basis, 0.5% to 1% of the total portfolio that is up for asset rotation. The number that you see is higher this year, but that has to do with capital recycling strategies. So I'm referring to the Swedish exit that we're doing. So basically, you could expect that up to 75% of the number that you see on the slide are not older buildings that we're trying to get rid of and that are high yielding, but are basically capital recycling strategies where we are planning to reinvest the net proceeds of these divestments and have a positive impact on the EPS of the company. Another building block, the EUR 250 million of new investments. Maybe just drawing your attention to the fact that it is the first time in 3 years now that we are once again giving investment targets. So I think it's a clear indication that our expectations about the healthcare real estate investment market are clearly changing and becoming more and more positive. We are targeting both refueling our development pipeline and acquiring yielding assets on the back of an operator environment that is clearly improving, and this is bringing me then to the medium-term outlook. I think that the message here is, as far as we are concerned, is quite straightforward. The company is absolutely ready for the second half of the '20s, second half of the '20s that will be characterized by a growing demand for healthcare real estate on the back of demography, aging of Europe, will accelerate as the baby boom generation is starting to turn 80 and is growing older, but also on the back of improving operator performance. And I repeat that we're not just having conversations with operators about the margins, but we're clearly having more and more conversations about potential new business with operators coming from the operators themselves that are being faced now with this growing demand. So in a nutshell, I think that the company is ready for a new cycle and that we're looking towards it with a lot of optimism, notwithstanding the present geopolitical and macroeconomic environment. I think that we can end the presentation at this point and switch to the Q&A. And I'll let Delphine handle it. So I guess that you are aware that you can either post questions into the Q&A chat box or raise your hand and we will unmute you. So the floor is yours now.

Yes. [indiscernible].

Okay. Maybe in the chat box, quickly picking up one question. Other [indiscernible] are exploring tax optimization strategies via smaller subsidiaries to benefit from earnings [indiscernible] measures. Have you considered this approach? Ingrid, I'll let you handle the question.

We do already have in the Netherlands different entities. So what we are considering, because in the past to be applied with the FBI, there was a ratio between debt and equity that needs to be respected. So what we would like to do is to increase the debt that we have in those entities and trying to optimize on that basis the interest and debt stability that would lower the taxes. We are also having a look on the internal transfer pricing policy to see if there is also some headroom to have some fiscal optimization.

I see that some people raise their hands.

Yes, Mark raised his hand. Mark, you need to unmute yourself.

Can you unmute yourself and ask your question?

I want your view on the ongoing consolidation in the U.K. healthcare market because we just had KKR announcing a bid on Assura. We had last year Welltower buying Care U.K. What is currently your view on what's happening here? And what are you aiming in terms of potentially increasing your size in the U.K., which is a very strong market right now?

Yes. First part of the question about consolidation. But the only thing I can say is that we are very well aware of the consolidation potential in the healthcare real estate space in Europe today. It's something that we have been monitoring and keep monitoring, but there's nothing more I can tell you about it or I'm willing to tell you about it right now. But once again, we're very much aware of what the potential is in the market. Secondly, the U.K. market, I fully agree that it remains for Aedifica an attractive market to grow based on the operator performance. So it is clearly one of the markets where we even today, as we speak, already see growth potential. U.K. to combine with Finland because we have the development team over there and then the Ireland and the Spanish market. So that base gives you a little bit of an idea where today we -- the geographies where we do see growth potential.

And my second question is around your financing structure. Your [ LTV ] is up roughly 2 percentage points this year. You're aiming at investing EUR 250 million, which is another 3 percentage point with stable asset values for your LTV, so probably reaching 43%, 44% or very close to your rate of 45%. And your debt maturities only is less than 4 years, so you need to refinance a quarter of your debt every quarter -- every year. What should we expect on that front? That sounds a bit ambitious to aim at growing with the balance sheet, which seems to be rather stretched to me.

So I think, first of all, that the balance sheet is actually in a position when we look at the leverage to allow the increase to start investing. There's not only the DTA where it currently stands and where we expect to be at the end of 2025. But when you look at the interest cover ratio, that is a very comfortable level. And also for the coming years, we are expecting that it will slightly come down, but it will remain above 5. By saying that, I mean that the revenues that we are getting out of the lease agreement, they largely allow to cover the financial charges. So there we have some headroom as well. On top of that, when you look at net debt to EBITDA because in itself, it's actually maybe the most important KPI, which we should consider when you look at the leverage of a company because it's not influenced by fair value changes. Net debt to EBITDA, we are expecting that in the coming years, it will slightly decrease below the 8x. So also there, I see potential and headroom for adding new investments because the level of the 8 might seem high from a U.S. perspective. But in the European market, it's more like a KPI that is more common, I would say. This is as is on the balance sheet itself. Then regarding the debt maturity; so indeed, the average debt maturity is 3.8 years. It's a little bit an exercise between finding the right balance between the cost of going longer and also the liquidity needs that you need to cover within the company. We do notice that each time where we have bank financing that comes to maturity that we can refinance with the banks. Banks are also open a little bit to increase the exposure that they have towards the company. Bond markets are open again. When I look at the marginal cost of debt, so we pay a credit spread that is around 110 basis points on the bank loans towards the banks for bank financing. This is with a maturity of 5 years. So if you add to that the mix swap, that means that the marginal cost of debt for us would be the bank financing around 3.4%. And then look at the bond market, it will be somewhat higher. There it will be closer to 4%. That means that you can go longer. So there you can have more than 8 to 10 years. So it's a little bit finding the balance between adding some more longer term debt. And that is probably something that we will be doing in 2025 to extend a little bit the average debt maturity, but at the same point in time, also making sure that the average cost of debt remains at an acceptable level.

Maybe adding to that, when you look at the balance sheet today and the debt-to-asset ratio. We're combining this also with the fact that we see the '24 valuation stabilizing, even slightly growing, and with our long-standing policy that we want to see a debt-to-asset ratio of maximum 45%. On top of that, we apply now some capital recycling strategies. So if you add all of this up, I think that you can easily come to the conclusion that we have at least EUR 0.5 billion of firepower in terms of new investments. Okay. If we want to stretch it beyond that point, then we have to start thinking about raising equity, which at today's stock prices, we -- it doesn't make a lot of sense. But we do see the market evolving in a quite positive way. So what we need to show right now, first of all, is earnings growth to the market within the health care real estate space and then we'll take it from there. But the potential clearly is available right now.

I just have 2 questions about Sweden, if I may, please. What is the rationale for the exit from Sweden? Because it's the only country you could actually generate some development profit on the development. So does that mean that you're also selling the land banks? That would be my first question. And also the yield on the Swedish portfolio is 6.4%. So do you see opportunities to invest above this yield currently?

Yes. Maybe I'm starting with the second question. It's not a matter of the yield. It is a matter of to what extent was the Swedish portfolio contributing to the EPS of the group. And when we compared within the whole of the portfolio, so when we benchmark our Swedish portfolio with the other countries, it was clearly underperforming in terms of contribution to the EPS to the point that recycling these assets and reinvesting this money in other markets in which today we are active. It would lead to a higher EPS for the company and the group. So that is the whole rationale of it. Secondly and that's perhaps more linked to the first part of your question. Yes, we were developers in the Swedish market. But this was a company that was set up by Hoivatilat Finland just before we took over Hoivatilat Finland. And we, to be quite honest, never were able to scale it up to the same levels as the Finnish development activity. And it seems also to be even in today's market, quite difficult to scale up this development activity. So when you combine the fact that we were not being successful in scaling up the development activity in Sweden and the fact that we can reinvest the proceeds of this divestment and have a higher EPS, that made it to us a no-brainer. So it's not so much the yield that you see, which is important. It's in the end, the net contribution to the EPS where we can clearly improve.

But regarding your investment target, do you still see opportunities above 6.4% currently?

But we do not need to be above 6.4% currently. So in the end, we do think that we want to be around 6% when talking about yielding assets and preferably high when talking about development activity. What we do see in the market today is that we are starting to get there. Meaning that when looking at the real estate -- well, the health care real estate market today, the bid-ask gap has narrowed down a lot. So that means that there are more realistic buyers and sellers in the market. So we do expect to see more deals kicking in, in general, but also for Aedifica. And that means that around 6, there is more and more potential in the market. And then it depends on because we're talking in the end, what is the net contribution to the EPS. Okay. Then you have to differentiate between countries in terms of tax leakage, overhead costs in the countries, et cetera, et cetera. But there is a playing field now that is allowing us to start thinking about growing the portfolio through new investments.

[ Federick ].

Federick. Yes.

Just 2 questions on my end. I will ask separately. First, on the rent cover improving. What does it mean for you in terms of rental prospects over the long run? And aren't you afraid that this margin expansion could lead to more regulation at some point from regulators in order to cap the private operators' profit?

I didn't quite understand the first part of your question. Could you quickly repeat it?

Yes. What does the rent cover improving means for your rental prospect?

Okay. The rent-cover improvement, well, basically, that is what we need to see to get back into an external growth model with Aedifica. When you look at the health care real estate market today, there's one absolute certainty. There will be a lot of demand because of the aging of populations in Europe, which is already today starting to reflect in waiting list in some regions in Europe. So there will be a huge need to increase capacity. But we need to turn it into something which in the end is leading to accretive earnings growth for us. And that means when looking at reality today, we need to realign, as I explained before, our cost of capital with today's cost of construction and the rent payment capacity of the operators. Now when the rent payment capacity is recovering, it means that basically also relating to what I just was telling to [ Celine ] is that once their rent payment capacity starts increasing, the pool of potential deals will start growing because we will get a reasonable return, but also based on an affordable rent that can be paid by the operators. So that is the fact that these rent cover starting to improve is leading to a lot of future potential for us. The question about regulation, to be totally honest, I think this is a little bit influenced by some of the things we've seen happening in Belgium. I'm not that much afraid, okay. There always might be exceptions. But on average, I'm not that much afraid of European countries starting to overregulate the sector, because I'm actually expecting that in a lot of these countries in the very near future, these authorities will be confronted with huge needs in terms of building extra capacity. And I'm also pretty sure that they're not going to finance it with public money. So they will have to turn to the private market one way or another to finance it for them. So they will have to make it possible. Otherwise they will be confronted with what I just mentioned that is already happening in some of the European regions that they might have a system that is totally blocked and facing huge waiting lists. But waiting lists, we're talking people that have an acute reason to enter a care home. So it's not people that can afford to wait. So I'm, in that respect, more optimistic than pessimistic, even taking into account regulation.

And the second one would be just to rebound on what you said. So you mentioned 6.5% or 6% to 6.5% as a target in terms of yield requirement. And I guess part of the EUR 250 million you want to do is also new development. But I guess the question would be, is it possible to find operators today willing to commit to construction to a building towards deals when your portfolio itself is valued at 5.3% on average? Don't they have no incentive at all to do so?

Yes. This is on a country-by-country basis. But first of all, when we're talking about building and development, the first hurdle you have to take is the cost of construction. It is what it is today, increased by 20%, 30% over the past couple of years. And then you have the cost of capital of investors or whomever is willing to finance these projects. So that leads to a certain rent requirement. So the reality in a lot of the countries is not so much the availability of land or the availability or the willingness of developers and investors to proceed. It is more the rent payment capacity, which is holding us back today. And operators are very much aware of the fact that they will have to pay a certain rent to get access to new buildings in the future. The question, however, is that you want to avoid over-rent situation. So -- but there, we do see that some of the countries already today allowed to do new developments. The U.K. is one example, where we still do see a lot of development potential. Also Ireland, we're expecting hopefully to add a couple of new projects to the portfolio because operators can afford to pay the rent levels that we need today to be able to build. Other countries, it remains more difficult. The German market typically is a market where it still remains a relatively stressed situation. But then back to your previous question, as rent covers or rent payment capacity is improving on the back of improving occupancy, we're expecting to see more and more countries opening up also for new development schemes. And the Spanish market where we also see development potential today, so, yes.

[ Vivien ].

Vivien.

A couple of questions on my end. Maybe first on the disposals. So I understand that outside of the Swedish portfolio, you already sold, and the remaining to be sold. Could you maybe give some color on what kind of assets you expect to sell this year? And what type of criteria did you use? Is it mainly low-yielding assets? Or is it also to reduce maybe tenant exposure? And what country are you targeting most? That might be interesting to know.

Well, the country that we're targeting most clearly is Sweden, because that will be the bulk of the asset rotation in 2025. Referring back to what I said during the presentation, I think that you could consider that more or less 25% of the target that we mentioned for asset rotation will be about buildings that we picked on the back of our building condition measurement program. Meaning, these are buildings where, for whatever reason, Aedifica does not see a long-term future within our portfolio and where we think it makes sense to sell them today. To be totally transparent, this will probably be, to a certain extent, somewhat higher-yielding buildings, but where you have clear reasons to get rid of them today to avoid future issues within our portfolio and also taking into account the targets that we have, for instance, in terms of ESG. As I mentioned, 75% of this target has more to do with what we call them capital recycling. And that means that in the end, that will be assets that we're selling because we're convinced that once we have the net proceeds, we can reinvest and get a better EPS out of it compared to the situation that we're in today. I already explained the Swedish situation. But that could also mean that we will be selling some very low-yielding assets. And I'm talking really very low-yielding assets where it's clear that we can immediately reinvest and have a much better impact on EPS and still have similar quality assets. So we're not sacrificing on quality there.

And then a question really on portfolio valuation. You mentioned that the bid-ask is narrowing, meaning that we could see more transaction on the market. What do you believe that could impact? Because I think valuers have been quite cautious this year, especially with the lack of transaction. Do you believe that transaction evidence could put some pressure on your valuation? Or are you quite confident that the current valuation is really bottoming out based on market evidence?

Yes. I'm actually quite confident that -- but you know that we're both sellers and buyers in the market today. So in terms of what we're selling today, we do see more and more deals. When we say that we are in line with fair value, it also means that we are slightly above fair value. So I think that the market is or at least valuation is very well in line today with the market reality. I can turn it the other way around. I do not see a lot of evidence in the market that would really challenge the valuations today.

The first one is also on the disposals. I see that in Spain, you also don't really have a large scale. But you just mentioned that you see development potential there. My question is, given that there is no yield given there, would you consider selling Spain as well because you don't really have a larger scale there?

First of all, right now, we do not consider selling any other geographies. So the only exit that we have in mind is Sweden. So we don't have any other exits out of countries in mind today. The Swedish market, to us, is basically very marginal because we're just about to deliver 2 projects. But we are thinking about the future in the Spanish market. And today, we're much more inclined to grow our exposure to Spain for the very simple reason, and back to lots of things or answers already have been given to other questions. One of the attractive points about the Spanish market is the rent payment capacity of the operators. The Spanish operators have been capable also to keep quite healthy margins. And that means that this is a country where probably you can start growing more easily than in certain other countries where margins still are recovering, improving clearly, but still recovering. So Spain, to us, we see it more as growth potential today.

And then my next question is on the Swedish divestments. You're going to divest the schools. And I remember at the Capital Markets Day, you mentioned that the yield of the schools was around 4.5% in Finland. Is that the same in Sweden, those metrics?

We have actually one school in Sweden, which has been recently delivered and we haven't disclosed that. The 4.5% in Finland is the yield that you get when the school is being operated by a municipality. And when you look at the Finnish portfolio, in terms we have top of mind around 10 schools in our Finnish portfolio that we develop ourselves. And if I'm not mistaken, with the exception of one, all being operated by municipalities, so the city of Helsinki, the city of Oulu are tenants of Aedifica schools in Finland. So that is a very specific situation. Our Swedish school in Nynashamn is being operated by a private operator, which in the Swedish market is not uncommon, by the way. So comparing these 2 doesn't make a lot of sense, to be quite honest.

And last one is on the in-house U.K. redevelopments. At the last -- in last quarter you had a redevelopment there at 7% yield on cost, which is, I think, a very good way of unlocking value. First question, do you expect to see more of those redevelopments? And then second one is regarding your credit spreads in the U.K. Is it the same? Is it also 110 basis points or is it more?

I'll let you first answer the first question.

Yes. Spread for GBP denominated debt is higher. Yes. So we have not done refinancing recently. So the way that we have financed a part of the U.K. portfolio. So partly 1/3 is financed in GBP. Part of it was done through USPP, where we have a fixed rate. And part of it was done through bank loans, which -- where we also completely hedged and fixed the interest rate. But the spread is higher. Yes.

Then maybe answering the first part of the question, yes, within the portfolio, we have identified more redevelopment potential. So the first one that we've shown was the amount in the U.K., but there are others that we're working on today. And that will be part of the refueling of the development pipeline. Of course, we're acting as developers ourselves in these cases, which will take time to obtain building permits, et cetera. And we negotiate with operators. But we clearly have a list of to be redeveloped assets in the portfolio.

Stefaan?

Stefaan.

I have questions on Finland and Germany. So first, Finland, the staffing requirements have gone up again, even being less than initially fared. What do you expect on the impact on profitability for tenants? And how do you look at those risks? So that's the first.

First of all, I'm going to refer to what I mentioned during the presentation. Two of our main tenants in Finland, Attendo and Mehilainen, have been flagging to the market, not specifically about our portfolio, just their communication towards the market that they have seen their margins improving because their fees went up more than the costs went up. So they're basically catching up for what happened in the past. So that was a quite positive message. And by the way, these 2 tenants, without going into too many details, are also tenants that we know are looking into building new capacity today. So it's not just them talking about margins. They're also looking at building new capacity today in Finland. And to be totally honest, I need to check on what you said about the increased staffing requirements, because I know that there was a plan to increase staffing requirements in Finland. But that the government in the end decided to lower staffing requirements. But I will check with the Finnish team.

Yes. I thought it went from 0.55 to 0.60 care staff per resident. It's in the press release.

Yes. It should have gone up to 0.65 or even 0.7 and then I have to bring it back. And that should have happened in April. I need to check. But basically, they abandoned their plans to keep increasing. Yes.

Second on Germany. Could you comment on the quality and profitability of your German tenants? Because I also saw a survey that shows that investors, and it's a recent survey, still worry on German operators in general and also given the weaker investment market there? And the second one, could you quantify the expected like-for-like growth for Germany in '25?

First of all, commenting on the German operators today. The picture is a bit mixed, to be quite, honest in Germany. But when we talk to the operators that we are working with today, we clearly see improved occupancy. And what we hear from them because they're not all of them are 100% transparent up to the level of their EBITDA margins. But we hear from them that they are in a much better place compared to the previous years. We also see that in effect that some of our German tenants or prospective tenants are also thinking about growing again. So there is, once again, a market opening up in Germany where operators are trying to take over their peers and competitors and where some operators are thinking about developing. Now developing in Germany, right now, it seems difficult. But you do see operator market becoming more dynamic again. This being said and I know because I've seen the survey that you're referring to, what also has been a reality is that in Germany, also in 2024, there have been lots of operators stepping out of the market. But then we're talking about the small mom-and-pop shops. And this is a reality that we identified already, I think, in 2023 in the German market is that a German operator needs to have a minimum level of administrative backbone to be able to increase its income because you need to negotiate with different authorities. It's a complex system. And if you don't have the administrative backbone to be able to do that in a very successful way, and this very often was the case with these very small local players, then it becomes more difficult. So basically, what we've seen in the German market is a lot of these smaller players stepping out of the market and improved margins for the somewhat bigger, but it's not so much a matter of just size. It's more a matter of administrative backbone, how professional are you as an operator in the German market. So that is clearly something that we have seen. And in my view, that is what is reflected in the survey that you're talking about. But I could stick to operators that are clearly trying to capitalize on the situation and are building up new portfolios by taking over the cherries within these smaller operators that are trying to get out of the market because they can't cope with the administrative burden anymore.

Aakanksha?

Aakanksha.

Aakanksha Anand from Citi. I have 2 questions. The first one is basically following up on Mark's initial question on the evolution of the portfolio split. So the question essentially is, how do you view the evolution of U.K. and Finland as a percentage of the portfolio, given they are both your really strong growth markets at the moment? Can we kind of expect the share of these 2 cumulatively to go north of 50%? They're currently, I think, about 40%.

Very spontaneous answer, we don't have a specific target. So it's not like today we aim at growing the U.K. combined with Finland above 50%. It will be a little bit more opportunity driven. So in the end, it will also depend on what will be happening in lots of other countries. So -- but do we see growth potential today in those 2 countries? Yes. The answer is clearly yes.

And my second question is slightly more longer term. So in the sense that given that the structural tailwinds in the sector are intensifying, there is improving operator health. It seems likely that at some point, there would be a potential for increasing the like-for-like growth above indexation. So basically, the reversionary component in the portfolio, probably through evolution in lease structures, so say, like shorter leases, more frequent uplifts, et cetera. Now do you expect to have these conversations with operators? Or are you already having such conversations with operators? And the second part of the question would be, what do you see as the potential headwinds to any such conversations occurring? And I appreciate its more geography specific because of different regulations, but any color on this would be helpful.

The first part of the question, the answer actually is yes. But then we're talking the future. This is not specific 2025. But when you're thinking about what will be happening in the health care real estate space in Europe in the next 3 to 5 years. I do expect to see a more dynamic approach of the lease structure. Meaning when we look at our portfolio today, already 3% of the leases that we have, have one or other contingent rent clause, mostly in the U.K. And we're building up experience with this. And this experience today is quite positive because U.K. operators are outperforming. So that means that, yes, we are expecting to collect in the U.K. in 2025 extra rent on top of the fixed rent and inflation coming out of these contingent rent clauses, which in the U.K. very often are linked to EBITDA margins or rent cover. So if they are above a certain threshold, we can collect extra rent for that specific year. So the first experience that we have in the U.K. is relatively positive. On the back of that, we are trying to turn that into a strategic goal for Aedifica and the teams within Aedifica to explore what is possible in other countries in terms of trying to incorporate such contingent rent clauses into new leases. And we are working on some pilots. Once again, 2025, it's rather marginal if we're thinking medium-term perspectives in the European health care real estate space. I think it will become more important, perhaps also under the influence of what we see happening in the U.S. and the way the U.S. REITs are approaching the whole business. This being said, you also inquired about tailwinds. I think that the main tailwind today is that, speaking really 2025, that too many of the operators are still traumatized about what happened in '22-23. The hit they took on their operating margins because of the cost increases and the revenue that was not immediately following. So if you would try to push operators too much towards contingent rent clauses today. They probably are also going to try and make sure that the downside risk is covered. So they'll probably be willing to push it to a floating rent. And this is something where we are not willing to go yet today, totally floating rent. So that might be the main tailwind in the very near future. Did I answer your question?

You just left the last part of the question. So what could be the potential headwinds to such conversations? And in which geographies do you think you'll face more of a pushback?

Yes. The potential headwind was what I said about the operators' mindset today, which is still a little bit too much traumatized about what they've seen in '22 and '23. And they might turn these conversations then into what we -- contingent rent for us is a top-up rent. It's giving us some extra rent potential in case they are outperforming. They probably are willing then to turn it into sort of also protecting them against the downside risk and turning into a totally floating rent. And I'm not sure that is a good plan already today. But okay, clearly, I think the main message here is we believe that the market will evolve in the way the market is approaching lease structures in health real estate in Europe in the next 3 to 5 years. So that's the main message. The countries, but clearly, the U.K. is the obvious country to use these top-up rental contingent rents. Why? Because it's totally transparent. You need absolutely full transparency of your tenants, of your operators at the asset level to be able to agree upon such contingent rent clauses. U.K. is a totally transparent country. And they already have a little bit of the culture to do it. Now that's clear. I think that Ireland might be following because we do see a lot of transparency in the Irish market also. And as transparency is increasing in Europe, and I'm going to be -- okay. And I'm not going to speculate about the countries. But we do expect to reach a very high transparency coverage in countries like Belgium in the near future and perhaps some other countries. Now if that will happen, that is creating for us a playing field to start talking about such contingent trends. I think that we're out of questions. So maybe one last call. Delphi?

There are a few in the Q&A.

Sorry, they're not appearing on my screen. Sorry. Yes. It is a question about has the Board considered buybacks as a means to close the NAV discount gap? Do you want to take the question, Ingrid?

Yes. But there is actually very limited evidence that buybacks do have an impact on share price and that they are allowed to close this discount that is currently existing. On top of that, yes, I think the message that we are giving today is that we believe that we are about to start a new cycle. So that also means that we want to keep some headroom to start investing again in the market.

Yes. Maybe taking another question in the chat room. So what factors contributed to this minus 0.4% negative rent reversion? Do you anticipate similar trends in rent negotiations moving forward? And the question continues, are tenants actively discussing rent levels with you? Maybe first of all, the first part of the question, minus 0.4%, these were really very specific assets, so specific incidents within the Belgium portfolio that led to a negative rent reversion. And it's really a couple of assets. And I think the majority of them located in Brussels. So it's a very, very specific situation. It is not a trend. So we do not perceive today within our portfolio throughout the whole of Europe, a trend of operators trying to negotiate with us lower rent levels for trying to break in into existing lease contracts. That definitely is not happening. I think that the risk is even remote or more remote today compared to the past because of the occupancy and operating margins that are clearly improving in Europe. So it really is not a trend today. So we're not expecting to see this also popping up as a trend in the near future given the fact that the situation for operators is clearly improving. Could it still happen in the future, negative rent reversion? Yes, of course. There always can be one or other reason with a specific asset to review rent levels. But it will remain, in our view, really incident based, not trend based. I hope that was helpful. And I think the other question we already took. So I think we are at the end of the session then. Delphi?

Yes.

Okay. So thank you all very much for attending this session. If you would have any further questions, well, you know where to find us, feel free to reach out. And if you're interested in the Capital Market Days, also feel free to reach out to Delphine. Hopefully see all of you then in Dublin. Thank you. Bye.