CTP N.V. (CTPNV) Earnings Call Transcript & Summary

Good morning from Prague here at CTP. We have update on the first half of 2025, which has been so far a very good 6 months. We, at CTP, say, changes opportunity, and we have seen many different changes over the past years and that has been good for our clients and our business. Yes, we see trends of deglobalization to continue, which triggers nearshoring in Europe, for Europe and then in Europe, for Europe, it's often Central Europe where companies land. Those are companies from all over the world, but also Asian companies, which is now good for more than 20% of our new business. Most of the new business we continue to do for existing clients, long-term loyal partners who we have built facilities for over the past decades in different countries throughout the CEE, region of Central Europe, we continue to do so. So we get still more than 70% of all the business we do from our existing clients, but it's very good to have new companies come in as well, many Asian, in particular, Chinese companies who have found their ways to Europe in order for them to grow their business and supply their European clients. So it has been good in numbers. We have seen 1 million square meter of new leases, which we've signed first half this year, 1 million square meter is 11% more than we did during the first half of 2024, 11% up. And we have also been able to sign those leases at higher square meter prices, around 5% more compared to prices of 2024. And looking forward, we continue to see strong leasing activity. It is often the case that we closed more deals in the second half of a year. So we are positive about the rest of 2025. Clients are happy. Tenants are happy. Retention rates continue to be 85%. Collection rate that means the money we collect from the tenants, close to 100%, 99.7% of all rents we charge we get paid from our tenants. So they are very strong, financially, healthy companies who grow. City part model. So our unique business park concept continues to grow and is very successful, mostly grow with existing clients and the companies who have been here continue to grow their business and often, in some cases, started as low-cost manufacturing, turned into a full scope facility with R&D in-house and logistics facilities, so became real big. We break it down at CTP. We talk about operator. Operator is our portfolio of income producing. We are 93% occupancy, similar same to what we were before. We've been historically around 95%, 93% at 6.2 years of WAULT. That's the the current figure. We have a portfolio now of around 13.5 million square meter. 13.5 million square meter is good for EUR 757 million of rental income per year, is the 13.5 million square meter portfolio, which we have built mostly, I think 80% of that is constructed by ourselves, and we have done also acquired some portfolios here and there as part of an entry strategy in a new market or in order for us to grow our market share, which we continue to do. And we have around 1,500 different tenants in all those buildings, so that's good. And these buildings are well maintained. They're all certified and we look after those properties as if they were ours, which is the case. So we continue to invest to make sure that parks and buildings we made an excellent condition. That means we continue to invest in infrastructure, access to our parks in green areas, adding amenities and facilities to those parks to make sure that parks remain attractive. And often, I must say, become more attractive over the years because you're adding more companies and facilities and amenities and then these parks grow and become a center of activity and business for our local communities. Obviously, also we team up with schools and other stakeholders, which is good, so you provide education as well as workforce to those clients. In parts, we add incubators, smaller units as I think there's more opportunities to build these SBUs, more business units in different markets, especially in Germany but also in Czech Republic and other markets often as a part of a business park, it could also be stand-alone sites where we develop, I don't know, 30,000 square meter of SBUs in one location. That's what we are looking into. And maybe that's also the jump to the developer. Our second activity is the in-house construction company. We built a lot of stuff. We have underway, more than 2 million square meter of projects. Currently, some of that will be complete this year. So far this year, in the first half, we have completed and handed over around 224,000 square meters of space to our clients fully leased. And yes, the other properties, most of the 2 million will be completed during the second half and handed over to the second half of 25% and some projects will go into '26. Interesting, I think important to mention is that almost 80%, 8-0 percent of those projects and developments are within existing business parks. So those are parks which we started, where we bought land, build infrastructure, and we're continuing to add buildings and build buildings in those parts. Why is that so important? Well, it confirms the success of a park, you already own that land, you have done your infrastructure. So it's very nice to continue to add and grow those business parks to become a full-size business parks, and that's what the park is about you continue to add companies in different industries to diversify also. When this EUR 2 million is fully let, it will do another EUR 160 million of rental income. And we will be around 10% yield on cost as we typically do. The people at the construction teams do value engineering and procurement, of course, but also make sure that we build the right quality for the right price, which then helps us to get to a 10% yield on cost. Upon completion, we think these buildings will be 80%, 90% leased. We start and then we continue to build and most of when we start, we have a prelease for part of the building or for all of the building and we built a bit of speculative here to also have an opportunity for companies who need something soon. We can -- we have something on stock, as we say, but yes, typically, we then get to over 90% once buildings are complete. Czech Republic, our home market and very strong. I must congratulate the team here in Czech Republic. They do a fantastic job. Jakob Koder is at the helm of CDP Czech. He's done a great job, and he's been with us for a couple of years now. He started as a leasing guy and turned into a proper country head here. So congratulations to Jakob and his team for the fantastic achievement so far we have seen in the Czech Republic, a lot of projects underway throughout the Czech Republic, in particular, in Brea. CTP's home market, you could say where also we do things with Hitachi. We're doing some things for for Honeywell, for other long-term clients. And at the city park which is a flagship business park where we also now have more engaged the city, but also the university and the high schooler, yes, which is good. It's next level business park. It's also a little bit of a kitchen maybe but where we develop and invent new property types and new things, which is nice to see that the Czech teams continue to do that. That's good. Poland is good, strong, good demand. and his team started obviously much later in Poland compared to Czech. Czech, we've been since ever, since the launch of CTP in 2000. In Poland also, only came a couple of years ago with an acquisition of 7R, a friendly local developer, which we knew, we bought most of their land bank. There's some projects they had underway. and his team turn it into a development machine, and they continue to do one after the other side. So the -- currently, we have more than 100 people in Poland in Warsaw with offices in Poznan, in as well. That's good. And in Germans getting there, nice team. I seem to spend a lot of time with them. Two ways or 2 things we do 2 business lines in Deutsche Industry, which is the portfolio of properties we bought a couple of years ago. 1.6 million square meter with many, many, many tenants that is a very different business to our normal new build stuff, we do both at the moment. So we have a couple of sites which are magnificent really nice, beautiful opportunities, which we've been able to buy because we felt that the market was good to buy in Germany in the past years, and that resulted in us buying a site in Mülheim in Düsseldorf but also in places like and Krefeld, et cetera, for our new developments, and we have been able to start. So we're under construction in multiple sites, more than 20 locations throughout Germany, where we actually are either constructing or about to start construction, which is a mix of SBUs, small units, 1,000 square meter with a loading dock and the door showroom a little bit of a workshop or a warehouse in strategic locations, but also custom build and warehouses all together. We've done some announcements on Mülheim and we'll continue to do other announcements. So it's good. And that is also our core business going forward. At the same time, we look after the Deutsche industry. which we bought for cheap at that time, but also we need to do refurbishments and rental growth, which we have been able to do and continue to do. And now also with the new government in place, you see a change going on in Germany and that result immediately in more demand for both Deutsche industry as well as our new developments. So quite positive about Germany. Yes, fantastic group of people based in Wuppertal, most of them, not all of them, more than 100 and I continue to go that every second week. We see more opportunity in Germany. Also good to see that some of the tenants we have in Germany also active in other countries in Central Europe. So there's also a good opportunity to work with them more to build on those relationships and grow the business together. As for me so far, thanks for dialing in and for your attention. I'll hand over to Maarten and of course, remain available for any questions you may have later on. Thank you.

Moving on to the financial highlights. The like-for-like rental growth came to 4.9% in H1 '25, driven by indexation and strong rent reversion. Occupancy at H1 remained stable at 93%. Our gross rental income increased by 14.4% year-on-year to EUR 367 million, and we continue to reduce our service charge leakage, bringing the NRI to GRI ratio to 98.1%. Annualized rental income increased to EUR 757 million, illustrating the strong cash flow generation of our portfolio and we confirm our target to reach an annualized rental income of EUR 1 billion by '27. Company-specific adjusted EPRA earnings increased by 12.2% year-on-year to EUR 199.3 million and CTP's company-specific adjusted EPRA earnings per share amounted to EUR 0.42, an increase of 6.2%. The lower year-on-year increase in earnings per share is driven by the increased number of shares as a result of the equity raise in H2 '24, but thanks to our backlog of deliveries and the development income in the second half of the year, the group is on track to reach its EPS guidance for the year, and we expect to return to double-digit EPS growth from '26 onwards. Now looking at the valuation results. The valuation results in the first half of the year came to EUR 598 million. Of this, EUR 181 million was driven by the construction and leasing progress on our developments, of EUR 374 million came from the devaluation of our standing portfolio and EUR 43 million from land bank. Our standing portfolio saw an average 11 bps yield compression, while the ERVs increased by 2.5%. The total gross asset value now stands at EUR 17.1 billion, up 7.2% from full year '24 and 15.9% year-on-year. CTP's reversionary yields stands at conservative 7%. And we saw yield compression in the first half of the year, but we also expect both further yield compression and positive ERV growth in the CEE region in the second half of 25%. In most CEE markets, inflation in just [indiscernible] remained lower than [ 5 ] years ago. illustrating both the affordability of the reason for our tenants as well as a midterm rental growth potential. This is also illustrated by the new leases that we signed in H1 '25 where rents were 5% higher than the new leases we signed in H1 '24. It is also supported by the undersupplied nature of the CEE markets, with only half of the industrial and logistics space per capita compared to U.K. or all the Western European markets. We also saw transaction markets reopening across Europe as there is more clarity around funding costs. And especially on the private equity side, that funds coming to the maturity we expect to see more churn. This will further support our valuations, but as well offer opportunities for us. Our EPRA net tangible assets per share increased from EUR 18.08 at year-end '24 to [ EUR 19.36 ] at the half year, representing an increase of 7.1% since the beginning of the year. Year-on-year, the increase was 13.5%. With this NTA growth and our dividend, we delivered a total accounting return for our shareholders of 70% in the last 12 months, highlighting our superior return profile, which is unique for the real estate sector. And now I hand over to Richard.

In the first half of 2025, we secured EUR 1.7 billion of debt to fund our organic growth. We issued EUR 1 billion of bonds directly after our full year 2024 results, seizing the market opportunity of very attractive pricing ahead of the tariff announcements and the subsequent market turmoil. In addition, we closed our inaugural Samurai loan of JPY 30 billion, the equivalent of EUR 185 million. Diversifying the sources of our funding is one of our main priorities. We transformed CTP from a purely euro senior secured financing structure in 2020 to a largely unsecured financing structure through bonds, private placements and unsecured syndicated facilities consistent with our stable investment-grade rating. Adding the Japanese yen market to our funding mix further improves our position. There's a Japanese yen market, which is the world's third largest is competitive at different times than the euro market. Finally, we signed a new unsecured facility of EUR 500 million in June, which we drew down in July. We continue to actively manage our funding costs and negotiated margin reductions on EUR 159 million of loans. In total, we have renegotiated or repaid over EUR 1.5 billion of our most expensive bank loans in recent months. This includes the prepayment of the EUR 441 million of expensive unsecured debt in H1 of 2025. The EUR 272 million of bonds, which matured in June were repaid from our available cash. And our cash position stands at EUR 800 million when including our EUR 1.3 billion RCF in and the new unsecured loan drawn in July, our pro forma cash position stands at EUR 2.6 billion, more than sufficient to meet our cash needs for the next 12 months. The average maturity of our debt stands at 5.1 years, with only EUR 254 million of debt maturing in 2025. At the end of the second quarter, our average cost of debt came to 3.2%, slightly up compared to year-end 2024 due to the new funding. Our current marginal cost of funding is close to 3.5% for 5-year money. And thanks to our strong cash-generating portfolio, we have a healthy interest coverage ratio of over 2.4x, while our normalized net debt to EBITDA remained stable at 9.2x. We expect the ICR to have bottomed down as we showed during our Capital Markets Day last year, thanks to our market-leading development yield on cost of over 10%, each euro we invest in our pipeline increases our ICR and decreases our net debt to EBITDA. Our loan-to-value decreased to 44.9% from year-end 2024, mainly thanks to the positive revaluation of our standing portfolio. We remain confident in the outlook for CTP. Leasing is strong. We see near-shoring speeding up in many industries with production in Europe for Europe, continuing to drive demand. Our pipeline is highly profitable and our growth is tenant led. Thanks to our industry-leading yield on cost of over 10%, we're able to deliver sustainable and profitable organic growth while maintaining our strong financial position. We confirm our EPS guidance of EUR 0.86 to EUR 0.88 for 2025, representing 8% to 10% growth compared to 2024. We expect to deliver 1.2 million to 1.7 million square meters of developments this year, in line with our long-term growth targets. Thank you for your attention. We now welcome your questions.

[Operator Instructions] Our first question today comes from Marios Pastou from Bernstein.

Just 2 questions from my side. So firstly, on the ERV growth of 2.5% feels like it's broadly running in line with last year's levels. So any comment you can make on which marks a driving this performance and whether you think that type of momentum could continue over the second half? And then secondly, you now split out the pre-let levels of the 2025 deliveries into both new locations and existing. I'd almost have expected the -- is the other way around with greater levels of pre-letting in the existing locations where you have better visibility. Is this typical of the trends you see?

Marios, thanks for your question. Regarding the ERV growth, indeed, 2.5% in the first half of the year. So we need to see what it will do in the second half of the year. But it comes back to the new leases we are signing. And we show you also the new leases that we are signing in the presentation, a split out by country. Because if you take into account the market share we have in the Central and Eastern European region, that's quite a good indication of where market rents are going. So if you look to the different regions, you see the Czech Republic, and that's no news sees a bit lower ERV growth or market rental growth because we have been able to increase already a lot in the last years. But we have seen some rental growth in the other markets like Poland, we see a bit of ERV growth coming to same in Romania actually for that matter. If you look at the new leases we signed there. So there is the different stages that the countries are in, in terms of market rental growth. And there's always a different bit year-on-year country by country, but on average, and that's also what we said, I think when we gave guidance for this year, we expect to be ERV growth in line with inflation or inflation plus inflation in the countries in which we are active is still most countries ranging somewhere between 2% and 3%. And that you see reflected in here. We don't see it slow down. As basically the supply-demand balance remains very healthy. You saw the amount of leases we did, 11% more than we did in H1 of last year and a good amount of head of term signed, which is the forward leading indicator for the leasing activity we will do in the second half of the year. So as long as leasing remains strong, we expect market rent growth to be in line with inflation or slightly ahead. In terms of the pre-let, and Remon can also comment more on it, but it comes back to the risk. Ultimately, if we start a new location, we want to have more security in terms of pre-letting because it's a new location. It's improve. So therefore, we typically require more pre-letting before we start. If we have an existing location, and that's in line with what Remon has been doing for the last 25 years, we will start building the next building when the park is full, even whether we have a pre-let yes or no, because we know the location, we know there is demand, we know the tenants, so there, we are much more comfortable to lease during the construction, and that has been our business model all along. So you need to see it from a risk perspective. This is actually not different than it was in other years. The pre-let typically in the new locations is higher than it is on the existing locations where we have much more that comfort and we'll always start with the next building if the park is full.

Our next question today comes from John Wong from Kempen.

Could you provide a bit more color on the building blocks for the 4.9% like-for-like? And also looking at your guidance, I suppose it's at 4% for the full year. How would we compare this to the 4.9% as it kind of implies a deceleration in H2?

Yes. Yes, in terms of -- thanks for the question, John. In terms of the like-for-like composition, it's around 2.5% of indexation. And the other 2.4%, 2.5% is from reversionary capture. So we have a 14.9% reversionary potential on the portfolio. So it's the part of that, that we're able to capture in the last 6 months. And so we're running ahead of the guidance, and we will do everything that we can to make sure that we stay ahead of the guidance.

There is always, of course, a bit timing in its half year or in which quarter you captured the reversion. So in Q1, as you might remember, the like-for-like was a bit lower. So we'll see, like Richard said, of course, we target to be higher, but the 4% was based on what we saw in terms of full year impact when we gave the guidance at the beginning of this year.

Okay. That's clear. And then just on your geographical exposure, I think I suppose you covered quite a fair share of the land between the Black Sea and the North Sea. But there's also quite some countries in Europe that you're active in. How do you look at entering new ones? And perhaps what are your criteria for entering new ones?

Look, we are in -- as you know, John, we are very much focused on our returns. Return requirements are leading. And it comes back to the tenants. Do the tenants ask us to be active in certain countries, because also if you look historically, that has been one of the main drivers for us to expand into new markets, tenant-let expansion. So tenants asking us, can you also do something for us in Romania or tenants asking us, can you do something for us in Poland. And to take the Poland example, we are not active there for a long time, as you know, because we could not make our returns. But as soon as we saw the opportunity with the higher interest rate environment where we are in, to make those returns, we entered the market. And that's also how we look at other European markets. There are a few large markets in which we are not active in Europe. We are not active in the U.K. We are not active in France. We are not active in Spain, in Italy. But tenant demand and returns that are the 2 main indicators. And then of course, some markets, we would consider expensive, U.K. for that matter. If you look at capital values there, it's not likely we will go that. So all those factors are feeding in there. But maybe Remon also wants to comment more on that.

Yes, sure. Well, I agree with what you said, Maarten. On top of that, you can also only do one thing at a time. And with that, I mean, we have entered some new markets in line with what we said before the IPO. We said we would do more in Western European markets. And then we did the acquisition of that portfolio in Germany. Since then, we have been able to buy more land sites. We built a team. So now it's very much a focus on getting permits so that we can actually start to develop on the land we have bought in Germany and also get more rent out of that Deutsche portfolio. So I think also that's what you need to do is also give you organization, the opportunity to grow and take some time to get up to speed before you take the next step. I think that's one thing which we would add, which I would add to what Maarten said. And another thing which I would add is that we are constantly looking at opportunities of where shall we go? Shall we go to a new market? And if so, what for? So we constantly do active market research. So we are keeping our eyes and ears open to make sure that we don't miss out on any opportunity. But in line with what we can do financially in line with what we can do operationally. But yes, I think yes. So we will -- we don't stop with operating in 10 markets. That's not the plan. The plan is clearly to continue to develop a strong platform with a very strong business model and a proven concept of full-service business parks with a variety of different property types and an unique system of managing the tenants and the parks as we do with all the amenities, et cetera, et cetera. So that model has proven to be very successful. We constantly improve and fine-tune, but it's definitely product, which we think in other countries will also be successful. So ultimately, of course, you will continue to grow and extend footprint in different markets going forward, definitely, yes, that's absolutely the plan.

So more later to come.

Our next question comes from the line of Vivien Maquet from B Group Petercam.

Two questions on my end. First one is on the deliveries. I think that you delivered with 100% pre-let, you're very confident about the letting, looking at the head of terms. And finally, I think that you are the pre-lets above last year's in couple of regions. So are you confident about delivering, I would say, at or above the upper end of the 80%, 90% pre-let guidance at this stage?

Yes. Thanks for the question. Look, I think we always target to do 80% to 90%. If we can achieve more, we will always try for that. The first half was exceptional with the 100% down expect us to keep that going forward. In terms of the comfort for this year, Maarten mentioned earlier, the increasing number of that we're signing, which is basically when we reached the commercial agreement with the tenant, but we're moving forward to sign the formal lease document, which normally takes a couple of months that we're seeing those increasing, so yes, we remain confident in delivering the 1.2 million to 1.7 million square meters. We'll see how that tenant demand continues, but we would expect to be comfortably within that and delivering comfortably within the 80% to 90% pre-let range. So that's we're just continuing, as Maarten said earlier, continuing the long-term pattern that we do build buildings next to the ones that we already have and mostly lease them to our existing tenants. So it's a business that can repeat organic and deliver organic growth on a very regular basis.

All right. And to that extent, is it for the element that we refrain you from narrowing the dividend range? I will assume that you have much more visibility into which would have linked, I would say, you to narrow the 1.2 million to 1.7 million, which still remain quite well, quite large.

Look, I mean, I hope you can join us on our Capital Markets Day in Bupetal and piece in late September, and I think we'll be looking to narrow the guidance there.

And then one final more clinical question on the current income taxes. If I look at the share that is included in the EPRA earnings is way down compared to last year. Could you maybe just give a bit more detail because I cannot find it in the full report either.

Yes, it's driven by some one-offs, which we can recover. But maybe it's better that we take it offline, I can send you some of the details because it's indeed quite technical.

Our next question comes from Suraj Goyal from Green Street.

We've been seeing the naturing trend for a while now, benefiting from Asian occupiers relocating to Europe, Europe, but the leasing rate of growth for the Asian occur looks to have slowed somewhat in the first half '25, perhaps a ceiling that you're approaching? Just want to hear your thoughts on that. And then if this recent deceleration continues going forward, how would that impact your ERV growth, if at all, as well as the like-for-like guidance?

Yes, I wouldn't characterize it as a slowdown, particularly there's always a little bit of volatility around any of the leasing numbers when you deconstruct them into ever smaller component parts. Our Asian tenants has been running around 20% of our new leasing for the last 1.5 years. They continue to be there. There will always be a bit of volatility on a quarter-to-quarter basis. But we don't see any reduction in demand, particularly from Asian tenants. I'll let Remon talk to this recent visit to Asia on that. But no, I wouldn't particularly over-interpret 1 quarter or 1 half into a long-term trend. The long-term trend for nearshoring is going to remain intact. It's very clear now that we are in a world with higher trade barriers, which will mean less global trade, more local production. And as Europe represents 25% of the world's GDP, manufacturers will need to produce their products in Europe to sell competitively in Europe. So we would be confident in that trend continuing for quite some time.

Yes, Richard, I can add to that, that we see more demand there. So also as you can see, we've done more deals first half this year compared to last year 2024 over the same 6-month period. And yes, with regards to the travel and the contacts with Asian companies, as you know, we have an Asian team. So we have a Chinese team, people who are in Europe as well as in China in order to make sure that we are close to Chinese companies help them support them in the decision-making and guide them and make sure that they get the proper support to set up the business in Europe for the European clients. And that's happening, and there's more to come, and we've only seen the beginning, I think, it's going to be much bigger. That's what I feel. We have a number of projects under construction, as you know, and that also attracts against suppliers. It also works as a kind of confirmation as a reference. So I think there's way more to come, chinese, but also Taiwanese. We have been working for Taiwanese companies for a long time. And currently, we have under construction, multiple projects for Taiwanese semiconductor business related in Germany in Bernau, Czech Republic, whereas the cluster of Taiwanese semiconductor-related businesses. There is another cluster Germany, where we have been able to buy 2 land sites currently in a zoning and permitting process and daily, weekly basis doing different proposals. And I'm meeting on a weekly basis, a Chinese potential clients. So -- and no, no, that we expect a lot from that. And we -- and then there's different sectors. This is maybe if you talk about Asian companies setting up business in Europe. That's definitely happening. And then there's certain industries. I refer to Germany. There you see clearly from the defense industry, there's demand from defense industry-related companies who are looking for space that's clearly happening. Also, energy, also for Germany, the Mülheim project, we announced as one of the first tenants. We will soon announce another tenant for Mülheim, as you can call it an energy park here is also the second tenant for that project is also related to the energy sector. So energy, defense, semiconductor and then also data center supply, pharmacy with strong pet food. We have referred to that earlier, is strong, e-commerce is still in Central Europe growing. So there's all kind of different industries, which there is a lot of opportunity out there. So not slow down, no, that's not the plan. The plan is to continue to grow and so we see from the market. So good demand.