Cofinimmo SA (COFB) Earnings Call Transcript & Summary

Welcome to the 2022 half year results of Cofinimmo. The speakers of today are Mr. Hanin, CEO; Mr. Kotarakos, CFO; Ms. Roels, Chief, Corporate Affairs, and Secretary General; Mr. Berden, COO, Health Care; Ms. Bicici, COO Offices. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. Now I will pass the word to Mr. Hanin, CEO.

Thank you. Good morning, ladies and gentlemen. Thank you for dialing in to this conference call and for being with us for the presentation of Cofinimmo's '22 half year's financial report. In the room, I have 9 colleagues that have been already shortly introduced. Let me start, and I'm on Slide #3, by saying that despite a volatile macroeconomic environment, Cofinimmo has made the best out of it and presents solid operational results for the first 6 months of 2022. On the operational performance, the gross rentals revenues are up 9.5% over the last 12 months. The occupancy rate reached 98%. And the residual lease length reached 13 years, which is particularly long. Our net result from core activities group share has increased by 6% compared to the end of June of '21 and stands now on EUR 109 million. We also confirm our gross dividend outlook for the 2022 financial year at EUR 6.20 per share. And our debt-to-asset ratio is adequate to finance the investment currently planned, which are approximately at EUR 600 million gross or EUR 460 million net. We've made EUR 240 million of investment in health care real estate in Europe during the first 6 months of this year. This means that our health care assets have reached EUR 4.1 billion. This represent 68% of the group consolidated portfolio, which passed the EUR 6 billion mark. In our offices segment, we continue to rebalance our portfolio toward the Brussels central business district, CBD. We have announced office building disposals in the decentralized area of Brussels for EUR 75 million to be carried out in 2023 and 2024. Concerning our distribution networks portfolio, the ongoing disposal of MAAF insurance agency in France continues for about EUR 35 million during the first semester of this year. Cofinimmo managed also efficiently its financial structure. To name a few achievements: Our interest rates risk is hedged at nearly 90% or more until the end of 2025. Our average cost of debt is 1.2%. And we have renewed an impressive EUR 900 million of debt while maintaining our debt-to-asset ratio at 46.2% and at credit spreads comparable to those of the previous financial years. And our headroom on committed credit lines amount to EUR 783 million after backup of the commercial paper program. On the ESG front, we continue to be a green leader. Amongst many other distinctions, we have been granted in January the sustainable growth award 2021 by Euronext, rewarding the company with the strongest sustainable growth over the last decade. And we have received several new BREEAM certification for health care real estate. I think our company profile and strategy are well known by all of you, so let me jump to Slide #8. The chart on this slide shows the dynamic of the change in the breakdown of our global portfolio per segment; and a rapidly growing share of our health care segment, which account for more than 2/3 of the portfolio. As you know, we are now present in 9 European countries, and 43% of Cofinimmo's total portfolio is now located outside of Belgium. Moving to Slide #10. With EUR 240 million, our investment in health care this year, so far, was solid despite a volatile macroeconomic environment. In 2018, the investment pace accelerated, with almost EUR 2.6 billion invested in health care since then. We also continued the partial disposal of our Cofinimur I portfolio, which are the MAAF insurance agencies in France. We have already divested EUR 73 million, of which EUR 32 million in H1 of this year. On Slide 11, you can witness our accelerated portfolio growth since Q1 2018 with a compound annual growth rate of 14%. Cofinimmo plans to continue its expansion path in health care real estate. In the meantime, we kept the debt-to-asset ratio under control around 45%. As you know, Cofinimmo has been a pioneer in ESG since 2008, as illustrated on the next slides. Cofinimmo received its first ISO 14001 certification as soon as 2008. Since then, we have developed many initiatives to be a front-runner with a high level of transparency. As 1 of the 20 leading listed companies in Belgium, Cofinimmo does set the tone in the country. This was illustrated in January when we received the Euronext sustainable growth award 2021. This award distinguishes the company that has shown the strongest sustainable growth over the last decade. It is granted to the company which has the best results in the combined ranking of their ESG score by 3 recognized independent agencies, on one side; and their stock price performance over the last 10 year, on the other side. On the ESG financing side, we issued our second sustainable benchmark bonds of EUR 500 million, again, in January 2022. This shows that on the ESG side we are seen as a very credible player by all our stakeholders. I'm skipping Slide 13 and move to Slide 14. This year, we continue to implement the project called 30³ that was launched in 2020. This project aims at reducing the energy intensity of our portfolio by 30% by 2030 to reach 130 kilowatt-hour per square meter, with a level of 165 kilowatt-hour at year-end 2021. We are well on track to achieve this objective. On Slide 15. Next to the impressive list of benchmarks [ gathered to the 2 ] last year, Sustainalytics credited us with a new ESG low risk score of 12. Also, on gender diversity, we scored very well. On European Women on Boards, Cofinimmo ranks third in the Belgian ranking. And on a worldwide level, Equileap ranks Cofinimmo in the top 500 out of a total of 4,000 company evaluated. We also obtained several additional BREEAM certificates. At the end of June 2022, we had a total of 10 sites with BREEAM or HQE good to excellent and 7 sites with BREEAM in-use good to very good. In total, the number of buildings that have obtained BREEAM or BREEAM equivalent certification at one time or another amounts to 32. Slide 16 provide information on the effect of the COVID-19 pandemic for Cofinimmo. Fortunately, we have during the last half year acknowledged a progressive reduction of the virus infection and a softening of the measure everywhere in Europe, which has proven a relief for all the people active in the health care sector and also beneficial for the business. At the M&A level, despite the volatile macro context, we still witnessed good investment level. As illustrated on Slide 17, Cofinimmo's market cap was approximately EUR 3.6 billion on the 27th of July, the day before yesterday. The daily liquidity remains sound. Despite a decline of 17% of our share price since January '22, calculate until the day before yesterday, the total shareholder return from 2018 until the end of June still amount to 29%, positive 29%, compared to a positive 9% for the BEL 20 index and 0% for the EPRA Europe total return index. Please also consider that the share price still showed a premium of 4% compared to the IFRS net asset value per share. Let's look now at Slide 19 and let's talk about the property portfolio. You will see on this slide that the total occupancy rate remained very good at 98%. In health care, the occupancy rate remains very close to 100%. In the office segment, the rate is 92.8%, coming from 88% at the end of 2017. And you also see on this slide the top 10 list of our tenants. Let's move now to Slide 20. The weighted average of residual lease term is 13 years, which is even 1 year better than at year-end of 2021. I would like to highlight here the figure for health care which stand at 15 years. As you can see on Slide 21, gross and net yields were stable during the first half of 2022. Overall, our average net yields stay well above 5%. I will now invite Sebastien Berden, our COO of health care, to take you through the highlights of the health care segment. Sebastien, the floor is yours.

Thank you, Jean-Pierre. And good morning to everyone. As Jean-Pierre mentioned and as you can see on Slide 23, Cofinimmo is consolidating its European health care leadership. Since January, we reinforced our geographical diversification and our presence in a variety of health care segments. Moving to Slide 24. As you see in this slide and thanks to a series of acquisition I will detail in a minute, the fair value of the health care segment now amounts to EUR 4.1 billion. We're approaching 300 health care assets, covering a total surface of 1.6 million square meters. Belgium represents 40% of the portfolio. The rest is spread over 8 different countries. As you can see on the right, we are also present in 4 health care segments. Moving to Slide 25. On these next slides, you will see that, in the first half of 2022, plus all deals after 30th of June, we have done no less than 27 health care deals in 7 different countries. The variety of different projects also illustrates our diversification strategy in health care both in geographical sense as per asset type. Allow me now to comment on 2 deals picked randomly. Let's take the first one, Grimbergen, in the list. So the first one is an asset located in a green periphery of Brussels. The work started in 2021 and should be completed by early 2023. The building will enjoy very good accessibility by public transport and car. It will offer 82 beds for elderly patients in need of advanced care. The interesting part of the story is that this site will replace 2 existing nursing homes in the same commune; and already run by Orelia group, the operator. These, of course, are not owned by Cofinimmo. Once the facility will be completed, those 2 homes will be moved to our new facility in Grimbergen. So it will provide residents with modern care facilities that mean current -- that meet current standards and increased living comfort. The site will have a total surface of approximately 6,000 square meters and represents an investment volume of some EUR 20 million. A triple net lease was signed with the operator, Orelia Zorg, for 27 years. Also, on ESG's point of view, the building will have an excellent energy performance. It will be supported by hybrid heating, cooling system, [ best ] ventilation system towards the whole building, solar panels and a car park with charging stations for electric vehicle. The second asset I will pick is the asset of Hoogerheide in the Netherlands, in the middle of the slide. This asset is located in the Dutch province of North Brabant. It's a nursing and care home currently under construction, with a surface of 7,400 square meters for 138 beds. Delivery of the site is currently planned for Q1 [ 2023 ]. The investment budget here amounts to EUR 26 million. The site is already pre-let to the operator, Stichting tanteLouise, a local markets leader in the Dutch province of [indiscernible]. The assets will be located near shops, green and residential areas; and will be easily accessible by public transport as well as by bicycle and car. Moreover, it will have sufficient parking space with charging stations for cars and electric bikes. It will also have modern and sustainable materials with long life cycle. And most recent techniques like geothermal energy, ample water buffering, solar panels will be also -- and we will also achieve an A level of energy performance. Cofinimmo signed a double net lease with Stichting tanteLouise for 20 years, which will start upon provisional delivery of the site. I will now give the word to my colleague, Yeliz Bicici, who will comment some other deals.

Thank you, Sebastien. And hello to everyone. In H1 2022, we signed 2 deals in Germany; and also completed a local development in Leipzig, the eighth largest city in Germany. This shows our determination to grow in that country. Now let me say a few words on the nursing and care home located in Leipzig, which we signed in May '21 and for which the conditions have been lifted in the course of the first quarter of '22. The acquisition price of EUR 19 million have been paid, and rental income started on the 1st of March 2022. The nursing and care home was already pre-let to the AZURIT Group, one of the leading German operators, and is located in a residential area which counts several community gardens where people can meet. Building is also located near several bus stops and a train station, making it easily accessible. It offers 132 beds spread over a surface area of almost 7,200 square meters. Thanks to the design and good orientation of the compact new construction and external sun blinds, the building requires minimal heating and cooling energy. In addition to this, the use of natural light as well as LED lighting results in an excellent energy performance. Finally, the building is connected to a district heating system, making it free of fossil fuels. To promote sustainable mobility, the building is equipped with bicycle parking spaces and charging stations for electric vehicles. A Dach und Fach lease contract has been signed with the operator for a fixed term of 25 years. And as you may know, Dach und Fach means that the owner primarily bears the maintenance costs for the roof and the building structure. We also stay very active in Spain, where we speeded up the pace of investments with up to 10 projects, ranging from greenfield to delivery of project completion. I'll quickly highlight one of them, which is the construction of a nursing and care home in Córdoba in the southern region of Andalucia. In May, Cofinimmo acquired through a subsidiary a plot of land there which will see the construction of a new nursing and care home. The investment budget for both the plot of land and the works amount to approximately EUR 15 million. Cordoba is the third most populated city of the autonomous community of Andalucia, after Seville and Malaga. After work completion, the building will have a total surface area of nearly 7,300 square meters and will offer 162 beds. Modern and sustainable materials with low maintenance needs as well as the latest techniques will be used for this construction. In addition, remotely readable meters will help reduce the energy intensity of the building, for which Cofinimmo aims for an A-level energy performance as well as a BREEAM excellent certification. Works are expected to start shortly within the framework of a turnkey contract. The delivery of the nursing and care home is currently scheduled for the second quarter of '24, which is also when the lease will start. The construction will be paid according to the percentage of completion of the works. The site is pre-let to Amavir, which is one of the leading operators in the health care sector in Spain and with whom a double net lease with a term of 25 years have been signed. We can now move on to Slide 29 for the breakdown of our distribution networks. Our 2 portfolios Pubstone and Cofinimur I represented at end June '22 a fair value of EUR 0.5 billion. Both networks together cover 342,000 square meters and counts almost 1,000 assets. Let me remind you that for Pubstone we have a long-term contract with a solid tenant, which is the brewer AB InBev, both in Belgium and in the Netherlands. On Slide 30, we want to update you on the divestment of Cofinimur composed of insurance agencies of the French insurer MAAF. You can see where we stand at 30 June 2022. 151 assets have effectively been sold, for a fair value of EUR 73 million. And for another 13 assets, private agreements have already been signed, which is a very good pace here as well. Let's now talk about the office segment as of the next slide. The fair value of the office segment represents EUR 1.4 billion at 30 June 2022 and counts 62 sites for 491,000 square meters. On Slide 33, you can see on the map and the bar chart that our strategy is to rebalance our portfolio from the decentralized and periphery regions towards the Brussels central business district. In total since 2018 and up to end '22, we sold for approximately EUR 138 million in those areas. Additional buildings are also in the process of being sold, as shown with the gray icons on a map and as I will comment on the next slides. On Slide 34, you see the ongoing disposal of 17 office buildings in the decentralized and periphery area of Brussels and Antwerp for an amount of over EUR 80 million. This action is, again let me remind you, fully in line with our office strategy. And the first closing of 13 assets have been done in December 2021 for EUR 60 million. On Slide 35, you see the future disposal of the evergreen building announced in January 2022 and due in Q4 of '23 for EUR 23 million. This semester, we have also completed the renovation of our office building Arts/Kunst 47-49 in the CBD of Brussels, on Slide 36. Here we are confident that we'll soon be able to lift up the occupancy rate. And finally, on Slide 37, you see the future disposals of 3 office buildings in the decentralized area of Brussels for EUR 52 million. Those divestments will be effective, respectively, in Q1 '24 for Woluwedal, in Q4 '23 for Herrmann-Debroux and in Q4 '24 for Souverain 36. I will now hand over to Jean Kotarakos, our CFO, for the presentation of the financial results.

Thank you, Yeliz. And good morning, everyone. For the overall portfolio, we can see on Slide 39 that the gross rental revenue grew by 9.5% year-on-year. This represents a like-for-like rental growth of 3.1%. We also note a positive contribution of the indexation of the rents at 2.5%. On Slide 40. As already stated, the net result from core activity, the EPRA earnings, reached EUR 109 million, up 6% compared to H1 '21 and slightly higher than the budget. This gives us an EPS -- sorry. This gives us an EPRA EPS of EUR 3.43 per share, also slightly higher than the budget. The lower percentage of increase for the EPS compared to the net result from core activities in euro is a mechanical effect of the dilution arising from the capital increases of '21 which were taken to account in the budget and those of '22 which were not budgeted. Let's now have a look at the other items that brings us to the net result on Slide 41. The financial instruments net income of EUR 138 million is mainly due to the fair valuation of the hedging instruments, in line with the change of interest rates on the financial markets over the period. These are noncash items. The result on the portfolio amounts to EUR 78 million versus minus EUR 25 million 1 year earlier. This growth is mainly due to the increase in fair value of investment properties between H1 '21 and H1 '22. Therefore, the net results group share stands at EUR 325 million or EUR 10.23 per share versus EUR 95 million 1 year earlier. Regarding our balance sheet structure, on Slide 42. The continued growth of the last half year can easily be seen in the investment properties and in equity, the red boxes in the charts. We now have total assets above EUR 6.5 billion, and almost 92% of it are investment properties at fair value, financed by more than EUR 3.4 billion of equity and more than 3.1 million -- EUR 3.1 billion, sorry, of financial and nonfinancial debts. On Slide 43, we analyze the change of the debt-to-asset ratio between year-end '21, at that time it was at 44.2%; and the end of June '22, which was 46.2%. The slightly higher ratio comes primarily from investments in investment properties, plus 2%; and the dividend paid out, plus 2.9%; offset by the effect of disposals, minus 0.3%; the positive mark-to-market of investment property, minus 0.7%; the result from core activities of the half year, minus 1.7%; and the 2 capital increases carried out in the first half, for minus 0.9%. On Slide 44, you can see that the net asset value is somewhere between EUR 105 for the EPRA NTA and EUR 114 for the EPRA NRV, depending on the concept you find the most relevant. I can comment here on the evolution of the IFRS NAV between the end of 2021, where it stood at EUR 102 per share, versus EUR 106 per share today, meaning in fact that it increased by 4%. The 2 main drivers behind this increase are the following [ ones ]: first, the annual dividend payment of EUR 6 per share, which implies a reduction of the NAV per share; and then the result of the first half of plus EUR 10 per share, which includes positive mark-to-market of the investment properties and of the financial instruments, which implies an increase of the NAV per share. So if you summarize, we had an IFRS NAV of about EUR 102 per share at the end of December, less EUR 6 for the dividend, plus EUR 10 for the [ accumulation ] of the result; and that leads us to EUR 106 at the end of the period. Let's have a look now at what we did on the financing slide, [ as of ] Slide 46. On the ECM side, we raised EUR 61 million of equity in H1 through contribution in kind and the optional dividend that was organized in May and June of this year. On the DCM side, at the beginning of 2022, we mainly issued with success a new sustainable benchmark bond of EUR 500 million bearing a coupon of 1%. Our S&P credit rating was then confirmed in March 2022 at BBB outlook stable for the long-term and A-2 for the short-term debt. When having a closer look at our financing activity in 2022 on Slide 48, we can say that, despite a very challenging macro environment, we've been very busy. Not only did we extend, initiate and refinanced credit lines, we also signed a new sustainability-linked syndicated credit line of EUR 315 million for 5 years. Please note that the credit spreads on these bank debt instruments are comparable to those of previous financial years. All in all, we have now EUR 2.4 billion in sustainable financing under the form of several instruments, including our 2 sustainable bonds of -- in '22, a sustainable commercial paper program and the sustainability-linked syndicated credit line of EUR 315 million I just mentioned. Slide 50 gives a detailed analysis of the debt instruments we use, highlighting our ability to access diversified funding sources. The average debt maturity shown on Slide 51 is stable and amounts to 5 years. At the same time, we kept the average cost of debt at 1.2% in H1, in line with the budget. And as shown on Slide 52, the debt maturities are well spread. At the end of June '22, the headroom, I mean, on the -- sorry. The headroom on the committed credit line is about EUR 1.6 billion. After deducting the credit lines kept as backup for the commercial paper program, the headroom reached EUR 783 million at the end of June. On the hedging side, you can see on Slide 53 that the -- that approximately 90% of the group's [ future debt ] is either fixed or hedged. This percentage is even at 100% in 2022, which is nice in the current uncertain environment. And now I will hand over to Jean-Pierre for the highlights on our investment budget and the outlook.

Thank you, Jean. On Slide 55, you will find a breakdown of our initial 2022 investment budget. You see that, out of the investment plan of EUR 600 million gross, the lion's share goes to health care real estate. At the end of June, the split is as follows. EUR 240 million was done. EUR 148 million was committed, including CapEx. And EUR 141 million was under due dil, of which EUR 27 million were recently done as announced in our 2 press releases of Wednesday evening. And the hypothetical investment is now reduced at EUR 47 million, while they were EUR 200 million in the budget. The amount for offices and distribution network are mostly CapEx related. We also foresee EUR 140 million of divestments. On Slide 56. The portfolio outlook is above the EUR 6.6 billion mark taking into account the ongoing investment and project development. Let's now have a look at the outlook for this year on Slide 57. The actual net result for core activities of H1 is slightly higher than the budget. Based on this and on the investment assumptions, Cofinimmo confirms the outlook for the EPS for 2022 at EUR 6.90 per share. These take into account the pro rata temporis dilutive effects of the '21 capital increase that were budgeted approximately EUR 0.5 per share; as well as those of '22, which were not budgeted, for approximately EUR 0.06 per share; as well as the disposals carried out in '21 and budgeted in '22. For your convenience, we also added a line showing the expected denominator for the computation of the 2022 EPS. Those figures allow us to maintain the target for the gross dividend at EUR 6.20 per share, up compared to 2021. We want to thank you all for your attendance. And we are now here to answer any question you may have.

[Operator Instructions] Our first question comes from the line of Veronique Meertens from Kempen.

A few questions from my side. I'm curious about the outstanding disposals. I believe it's roughly around EUR 100 million. Do you expect the majority to still fall into the office segment? And can you elaborate what you're seeing in the market and how confident you are in disposing these assets? And then maybe in line with that, can you give an update on how you're seeing the disposals into the JV for offices? And maybe secondly, looking at LTV. It's expected to creep up, up to 50%, but given current environment, shouldn't perhaps your LTV targets be lowered towards more 45%? Or are you still comfortable at the 50%?

So on the first question, on the offices and assets disposal, you've seen that during the first semester we have divested several assets, sometimes with closing being delayed; and always at a very nice value, meaning basically above our fair value in our book. We still have, out of the EUR 140 million budgeted for this year, still a bit above EUR 100 million, EUR 103 million to be exact, to do, execute during the second half of this year. You may also have, Veronique, witnessed that on the Brussels market there have been some major transaction at also still a very high value, especially in the north district part of the CBD. So the market, the capital market, for -- is still very active and is still very good. So that's basically for the first part of your question. The second part is about the JV: So we are still finalizing the preparation. Of course, with the Ukraine invasion, the macro environment has been disrupted. I'm not saying that it's less volatile today, but of course, to start a process and complete it, we need a window of probably at least 6 months. And we would prefer to have a more stable global environment to avoid to have to stall a process. So that's why, so far, the process has not started, but in the meantime, we will appreciate that we continue to upgrade the quality of our portfolio and the asset rotation as well. So in terms of LTV. So we are, [ at the end of June ], 46%. We consider that we will still be around our target for this year. So we have several means to manage our LTV, including divesting offices. So we do not consider that 50% is a target. Remember that we always had, as a target, to be around 45%. And if you look at our track record, which is also illustrated on one of these slides, you see that, year after year, we have basically managed it. And we want to continue to manage as we did in the past but also, as we stated in our press release, basically that we consider the current LTV to be at record level, considering only our basically target of EUR 600 million of acquisition and our divestment, which would bring the net acquisition to EUR 460 million based on our estimate of today. So I hope that I have answered to your 3 sub questions, Veronique.

Yes, definitely. No, that's clear. Maybe one other question from my side is regarding health care. Korian published an update today also seeing its margin coming down given the time lag between the rising staffing costs, while on the other hand, they're not able to increase [ tariffs ], especially in Germany. Is this -- do you -- are you having more discussions or conversations with tenants on the health care side maybe looking at indexation? Or is that still not an issue at this point in time?

Well, there is a time lag indeed, but I don't think that we are there to finance the time lag. So that's something that's -- basically have to be managed. Everybody has its issue. And as far as indexation is concerned, it's basically based on the contract. And that's what's we are moving on. That's something which was part of the global economics of the deal at the beginning, sometimes including with the operators; and we are still moving on this basis.

Okay, that's clear, but so you haven't had questions or requests from tenants that claim that...

I didn't say we had -- every tenant, not only in the health care, of course, wants [ to have a try ], but we have a global relationship, especially on the health care part, long term. So we have discussions, but at the end, there is a basis of a contract. So I think the time lag, which is indeed in some geographies something that the operators have to take into account -- but it's not a surprise. It's not the first time that you have interest rates increase. For -- those who have been in the market for a bit more than 10 years remember this. So everybody knows that there is a bit of time lag. I think the most important is the fact that we see the subsidies across Europe also moving up, so the fact that there is a time lag is something to be managed.

Our next question comes from Frederic Renard from Kepler.

I have a few questions on my side. The first is a bit related to the question of Veronique. I would like to know why like-for-like growth in health care is a little bit sluggish or at least seems a bit sluggish versus peers. Is it due to the fact that some contracts are tailored with caps? And maybe a question on that is, maybe today, it's not a problem to pass inflation, but what do you think? Do you think that for -- next year to be more complicated if you have to pass another 4%, 5% to your operator?

Frederic, I don't know really where -- why you are -- think that we are sluggish. Because the indexation is just the effect of timing and the mechanical effect of the anniversary date of health care contracts. So -- and of course, the anniversary date is not something which is uniform across players. It depends basically of history, so that's why, compares maybe one country to the others, you might have a difference. And this anniversary date, I will say, the later it takes, the better, because it means that you pick up basically then the highest indexation. So that's -- and so it's not -- to answer clearly to your question: It's not because of cap. It's just because of the mechanical effect of timing. So about the future, as I said, Veronique (sic) [ Frederic ], for me the most important is that public subsidies continue also to follow the trend of indexation. And we have made studies over the past and not the recent past, but you know that Cofinimmo is in health care since 2005. And what we did and we witnessed is that -- when you go back to 2008 and around that period of time, is that public subsidies have always followed indexation. Now it's true that we are reaching quite a high level, but don't forget that, I would say because of this pandemic, it's politically very difficult not to continue to support, for the authorities, the nursing home because we all know that have been through a very critical period. So, so far, we see no reason why the authorities would suddenly stop to continue to finance the nursing home.

Okay, that's clear. And a second question: How is the recent increase in the cost of capital [ can ] slow down your future ambition? And maybe a question on that is do you see a lower number of bidders today, as we speak, on assets.

Well, for the offices that we have divested during the first semester, so even after the start of the war in Ukraine, we still had many offer for each of the assets. And when I say many, 1 hand is not enough, even not 2. So we didn't see any kind of less attraction on the market. For the health care, we heard some portfolios that were put in the market tentatively and that have been basically taken back by the sellers, I think, which were dreaming about another yield compression. And clearly we don't see a compression, a further compression, coming right now. So that may explain why those health care portfolio have been taken out, but otherwise, when you look at the market, you still see a transaction but maybe a bit less than in 2021. And I think that some sellers are probably more waiting and seeing whether -- in what direction the macroeconomic environment will go.

Okay. And maybe last question, on the cost of debt which is very low, I mean, it appears. How would you guide going forward over the next 2, 3 years on the cost of debt?

Well, you remember first week of January. We have issued our second bond at 1%. We have also renewed debt, including this bond, for EUR 900 million and, as I said during the conference, at a condition that are comparable to the previous years, so before these crises. So don't forget that Cofinimmo had access to a large toolbox, I would say, in terms of financing and refinancing. So it's clear that the world has changed, but as far -- and we see clearly what you have seen. We will never issue again a bond at the same condition today, but we have alternative. So there are indeed some change in the market, but don't forget that we are well hedged as well, so I think that we are extremely well placed to basically enter into this changing world environment.

But today, the cost of -- or the marginal cost of debt for you would be close to 2.5% to 3%. Is it correct?

Frederic, Jean speaking. It depends what kind of debt you take and so on, and so it's an assessment that we will do item by item and for every case. What I can say is that the cost -- or the average cost of debt in the budget was about 1.2%. We are there. I expect that it will slightly increase in the second half. And you also know that over time I've always said that the 1.1% of last year was really a minimum; and that we were heading for an increase, a relative increase, of that cost of debt. I guess around 1.5% in the coming years but depending on market condition and so on, but that was already the case before the spike of the -- in the interest rates.

Our next question comes from the line of Herman Van Der Loos from Degroof Petercam.

It's Van Der Loos from Degroof. I have 2 questions. First, on the guidance, what kind of indexation are you budgeting for the full year? Indeed it looked low. I'm not sure that there are no caps here, but did you -- in clear terms, are you saying that the anniversary dates are more on the second half? That was my first question. My second question is on offices. You have a gross [ price yield ] of 6.1%. Considering the quality efforts you have made on the office portfolio, this looks to me very high, especially when you look at the market [ evidence you mentioned ] on the north district. Are you delaying this disposal? You're waiting for more positive appraisals. Or is it just the Ukraine crisis? And what can we expect as timing, next year, 2024, 2025? And my last question was just a clarification. You were not budgeting these '22 capital increases, now yes. May I understand that actually you rose your guidance, [ direct EPS ] guidance, by EUR 0.06?

Can you repeat your last question? Because...

Yes. The last question was on the guidance. And the -- previously the same guidance did not budget the capital increases of 2022. Now you do. Can I understand that you are actually raising your guidance by EUR 0.06?

[ So ] we basically could -- we can compensate the dilutive effect of these unbudgeted capital raise, contribution in kind and stock dividend, which means that despite the dilutive effect of those transaction, we are able to maintain our guidance of EUR 6.90, thanks to other compensation, but I will give the word to Jean, who will also comment on your first question.

Yes, but I continue on this one. So it means that indeed, at the end of H1, we are slightly above the budget, as written in the press release.

No, on the anniversary date, Jean, the indexation and so on...

Yes. Regarding the indexation and anniversary date, indeed, at end of June, we were not yet at the half of the indexation and the anniversary dates. So the bulk of the indexation will arrive in H2, so there is...

[ And what will be the indexation in budgeting ], Jean, for the full year, 4, 5, 6?

We'll see, [ other than now ]...

We would like to know, but we don't have a crystal ball. So on offices, Herman, we are not slowing down. Look. We have announced 17 assets already in '21. We have announced 3 large offices [ at price ]. And if you ask here on the Brussels market, everybody will tell you that these are excellent price. So it's -- of course, it takes time to prepare and making sure that we get the best value out of it. So as I said and as you know, there has been a landmark transaction on the Brussels market during the first half of this year. And outside of Brussels, you know that our offices are mostly aimed at being redeveloped as residential. And the resi market is very hot, so basically I don't see -- to be frank, I don't see a change, structural change, regarding the fundamental which are behind our offices in terms of attraction outside of Brussels or the CBD for resi purposes. And inside the CBD -- I think, all over Europe, we see that the CBD is basically gaining traction. What we see as well clearly is that, outside of CBDs of any countries, the offices that can only be used as offices have also -- being under serious re-rating, but as it's -- since we already cleaned that part of offices, we are much less concerned by this global trend.

But no disposals this year, Jean-Pierre.

Sorry...

No disposal of a minority stake this year. It's more likely next year.

No, look. If you tell me what Putin will do in September and that he will stop this mess -- but we all know that starting a process will take at least 6 months. And if there is another earthquake, this will probably freeze everything in the economy. So I'm not saying that I will end -- wait for the end of the Ukraine war because it might be in 10 years from now, but so far, the full environment is hectic, so we are prudent. We are not in a corner. We don't have to have a partner by the end of the year. It's not something which basically is a must to do for us. It's an optionality. And this optionality, as per definition, we want to use it at the best moment.

Our next question comes from the line of Steven Boumans from ABN ODDO.

I have some to start with. Have typical health care contracts changed recently? For example, can you comment on [ new ] changes but also potential changes in duration, maybe caps or other relevant items?

Just to make -- understand what you are referring to: You are referring to certain things that we have published. Or...

No, no, just on the new leases that are under discussion or maybe that you just signed, if there are any changes versus last year, for example.

Well, the market practice, as you know, are different from one country to the other. So I must say that we have not signed many new leases except for the one we have published. We are mostly with existing customers. And with an existing customer, you just do, as far as the structure of the contract, a copy-paste of the existing structure. So as far as we are concerned, we did not notice any big change. And for the market practice, you know, in France, 12 or 15 years max. In Germany, 70% of the lease is indexed, these kind of things. So that's basically where we stand.

Okay, clear. Then a general question on investment market volumes. Do you perceive a larger risk that rising development costs will lead to less product going forward? Or maybe the opposite that higher funding costs will lead to more sale and leasebacks from operators.

Well, I wish I would know, to be honest, but I think when -- you look at the level of activities in Europe. You still have a wealthy level. Whether this would increase or decrease, it's very difficult to say. I think that the segment has demonstrated during the COVID to be very resilient. Now clearly the world is changing, but basically we are coming back to more normal financing condition. Not with the current inflation, of course, but we are living with cheap money for the last 4, 5 years. And we all knew at that time that this was temporary, so what is happening right now is basically going back to a more normal level, but what will be the new normality exactly, where will be the new balance point, nobody knows.

Okay, clear. And then last question: Specifically, we today saw the EUR 125 million purchase in the Netherlands of ORPEA assets. Did you participate in the tender? And do you demand a higher yield versus other operators for ORPEA given the recent problems there?

Yes, we also have seen this deal this morning, which means that, if we saw it this morning, we were not involved in the transaction. And probably one of the reason, because ORPEA are probably -- knowing us quite well, this type of very small assets, it's -- I think there is an average of 13 habitants, resident per house -- is not our cup of tea, I would say. So it's we cannot comment on it. We just saw it and that's basically what we can say.

Okay. Maybe one follow-up: Why is -- why don't you like the smaller residences?

Well, the less -- the smaller the asset, the most delicate is the profitability. So unless you have very high subsidy, the business model is only viable because of the subsidy. And we do not consider that is a very attractive business model, to rely only on subsidies. We can have here and there some complement when it's [ part of a ] larger campus, but stand-alone assets with this number, it's something that so far we -- I think we have too many opportunities outside of this portfolio to really look at them. But maybe the reasoning is too short, but so far, we feel comfortable with this reasoning.

We have one more question in the queue coming from the line of Edoardo Gili from Green Street.

Have a quick question on the North Rhine-Westphalia development. Do you have any update on the project? It's a challenging time for development activity. I was wondering if you could give any more color on that.

Yes. The portfolio is on track. It's a very nice portfolio. We are still very excited about it. And things are progressing and we, of course, monitor the situation. And we have regular contact with our partner for the development and with Schönes Leben, of course. And I will say that all of us are still looking forward to have many deliveries actually next year, so next year will be quite important for deliveries, but we remain as excited as we were at the time we signed for this portfolio.

Understood. And the last question, on the -- on your French health care portfolio. So you have a large exposure to Korian and a little bit to ORPEA as well. And a short lease length, so think 3 years, do you have any more details in terms of negotiations and if there's an over-renting risk potentially in France?

Yes. No -- the second part of your question. We don't see over-renting risks, certainly not. And over the renewal process -- it's ongoing process. It's clear that in France they've been quite busy, let me put it this way, with other issues. So now, at least on the ORPEA side, there is a strong new governance in place. And I assume that we will be able to resume discussion after the summer, but for the rest, it's a normal process. And of course, the maturity of these different assets are different, so the renewal come at a different date, but so far, it's nothing extraordinary to mention.

Thank you. At this time, speakers, we don't have any questions in the queue. You may proceed.

No other questions? So if there are no other questions: You know that you can always reach our investors relation and communication department. I would like to thank you. And for those of you who still have to take holidays, enjoy it. And for the other one, happy to have a chat, as I said, in the coming weeks, if there is anything which surface. And looking forward to talk again to you at the next road shows, I guess. Goodbye. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect.